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Term Premium in Turkish Lira Interest Rates

Author

Listed:
  • Halil Ibrahim Aydin
  • Ozgur Ozel

Abstract

In this paper we decompose Turkish government bond yields and currency swap rates into expected short rate and term premium components. We use two well-established approaches and find similar results. Our findings show that the term premium displays countercyclical behavior and it is affected from expected inflation and share of foreign investors in bond market. Compared to survey-based expectations, expected short rate estimates of our model are more responsive to global and domestic market developments. Our estimations carry important information about the stance of monetary policy and investor behavior.

Suggested Citation

  • Halil Ibrahim Aydin & Ozgur Ozel, 2019. "Term Premium in Turkish Lira Interest Rates," Working Papers 1933, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1933
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2019/19-33
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    Citations

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    Cited by:

    1. Karahan, Cenk C. & Soykök, Emre, 2022. "Term premium dynamics in an emerging market: Risk, liquidity, and behavioral factors," International Review of Financial Analysis, Elsevier, vol. 84(C).
    2. Erasmus, Ruan & Steenkamp, Daan, 2022. "South Africa’s yield curve conundrum," MPRA Paper 115398, University Library of Munich, Germany.

    More about this item

    Keywords

    Interest rates; Term premium; Yield curve;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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