THE EVALUATION OF INTEREST RATE CHANNEL IN TURKEY 2001 – 2008

The basic channel within monetary transmission mechanism is the interest rate channel. However, the praxis of this channel in developing countries like Turkey and particularly under the regime of inflation targeting depends on the level of fiscal domination. Particularly fiscal domination within the Turkish economy had been high until 2004. This study aims to evaluate the effectiveness of the interest rate channel in the 2001:05-2008:05 term during which the last two Standby agreements are valid. The findings reached at the end of the analysis are in the direction that the effectiveness of interest rate channel can not be evaluated as an only sample during 2001-2008 term and that the pre and post 2004 terms show structural differences. Moreover, the post 2004 term interest rate channel works much more effectively than pre 2004 term. The disappearence of fiscal domination problem is of vital importance through the increase in this efficiency.