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Causal Relations Among ISE, Inflation, Interest Rates and Real Activity in Turkey: A VAR Analysis

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  • Nihal Kargi
  • Harun Terzi

Abstract

Using a vector-autoregression (VAR) approach, this paper investigates causal relations and dynamic interactions among stock returns, inflation, interest rates, and real activity in Turkey. Major empirical findings can be summarised as follows: (1) in the VAR system, stock returns explain little variation in inflation, although interest rates explain a substantial fraction of the variation in inflation; (2) inflation explains little variation in real activity while it explains a substantial fraction of the variation in stock returns, and (3) stock returns do not appear to explain real activity. All these findings indicate that stock exchange market in Turkey does not offer a perfect hedge against inflation.

Suggested Citation

  • Nihal Kargi & Harun Terzi, 1997. "Causal Relations Among ISE, Inflation, Interest Rates and Real Activity in Turkey: A VAR Analysis," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 1(4), pages 27-38.
    • Handle: RePEc:bor:iserev:v:1:y:1997:i:4:p:27-38
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