Macroeconomic Effects of Interest Rate Liberalization: The Case of Turkey

Macroeconomic Effects of Interest Rate Liberalization: The Case of Turkey

ULUSSEVER , Talat

This study proposes a financial computable general equilibrium (CGE) model, which represents the salient features of the Turkish economy. By including 15 production sectors and linking the real and financial sub-models through various channels of fund flows, interest rates, commercial bank intermediation, monetary and fiscal policies, we perform a counterfactual simulation using the financial CGE model to explore the potential macroeconomic effects of interest rate liberalization in the Turkish economy. Our results show that interest rate liberalization makes the government and the enterprises suffer a revenue loss, but households slightly and commercial banks notably revenue raise in both the short and long run. In addition, while the real GNP declines in the short run, it increases in the long run after the wage level has been adjusted fully and the employment effect has been eliminated.

Conference or Workshop Item
PeerReviewed

2009-06

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