Research Article

REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD

Volume: 27 Number: 3 July 26, 2026
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REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD

Abstract

This study investigates the bidirectional relationship between interest rates and inflation in Türkiye by employing the Smooth Local Projections (SLP) method to compare the periods 2007–2018 and 2018–2025. This method, which requires only stationarity as a statistical assumption, facilitates the identification of both short-term and long-term dynamics. Three methodological innovations are introduced. First, short-term and long-term relationships are presented in a format that permits verification of their consistency with economic theories through impulse-response functions. Second, the relationship between interest rates and inflation is jointly analyzed using both the Consumer Price Index (CPI) and the Producer Price Index (PPI). Third, a regime shift in 2018 is identified through comparative analysis of the two periods. The analysis indicates that during 2007–2018, the effect of interest rates on inflation was positive in the long term (approximately four years), while the effect of inflation on interest rates was positive in the short term (approximately six months). Results suggest that the Neo-Fisher effect was partially realized, the Fisher effect was not valid, a Taylor-type rule was applicable, and cost and exchange rate pass-through mechanisms likely dominated inflation dynamics. In contrast, for 2018–2025, the effect of interest rates on inflation was negative in the short term (approximately five months), and the effect of inflation on interest rates was either insignificant or negative. These findings, which are consistent with the New Keynesian framework, indicate the presence of a short-term, temporary disinflationary process. Overall, the 2007–2018 period was characterized by a strong long-term interest rate–inflation channel that was only partially effective in achieving price stability. In contrast, the 2018–2025 period exhibited a weakened monetary transmission mechanism with limited short-term effects. This comparison demonstrates a significant deterioration in the direction, effectiveness, and credibility of monetary policy during 2018–2025 relative to 2007–2018. This study is the first in the literature to empirically identify a regime shift in interest rate–inflation relationships in Türkiye in 2018.

Keywords

References

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Details

Primary Language

English

Subjects

Applied Macroeconometrics

Journal Section

Research Article

Publication Date

July 26, 2026

Submission Date

April 30, 2026

Acceptance Date

July 6, 2026

Published in Issue

Year 2026 Volume: 27 Number: 3

APA
Kaya, F., Koçak, C., Doğangün, B., & Saraç, T. B. (2026). REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD. Cumhuriyet Üniversitesi İktisadi Ve İdari Bilimler Dergisi, 27(3), 910-931. https://doi.org/10.37880/cumuiibf.1940735
AMA
1.Kaya F, Koçak C, Doğangün B, Saraç TB. REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD. Cumhuriyet Üniversitesi İktisadi ve İdari Bilimler Dergisi. 2026;27(3):910-931. doi:10.37880/cumuiibf.1940735
Chicago
Kaya, Fatih, Cem Koçak, Burak Doğangün, and Taha Bahadır Saraç. 2026. “REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD”. Cumhuriyet Üniversitesi İktisadi Ve İdari Bilimler Dergisi 27 (3): 910-31. https://doi.org/10.37880/cumuiibf.1940735.
EndNote
Kaya F, Koçak C, Doğangün B, Saraç TB (July 1, 2026) REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD. Cumhuriyet Üniversitesi İktisadi ve İdari Bilimler Dergisi 27 3 910–931.
IEEE
[1]F. Kaya, C. Koçak, B. Doğangün, and T. B. Saraç, “REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD”, Cumhuriyet Üniversitesi İktisadi ve İdari Bilimler Dergisi, vol. 27, no. 3, pp. 910–931, July 2026, doi: 10.37880/cumuiibf.1940735.
ISNAD
Kaya, Fatih - Koçak, Cem - Doğangün, Burak - Saraç, Taha Bahadır. “REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD”. Cumhuriyet Üniversitesi İktisadi ve İdari Bilimler Dergisi 27/3 (July 1, 2026): 910-931. https://doi.org/10.37880/cumuiibf.1940735.
JAMA
1.Kaya F, Koçak C, Doğangün B, Saraç TB. REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD. Cumhuriyet Üniversitesi İktisadi ve İdari Bilimler Dergisi. 2026;27:910–931.
MLA
Kaya, Fatih, et al. “REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD”. Cumhuriyet Üniversitesi İktisadi Ve İdari Bilimler Dergisi, vol. 27, no. 3, July 2026, pp. 910-31, doi:10.37880/cumuiibf.1940735.
Vancouver
1.Fatih Kaya, Cem Koçak, Burak Doğangün, Taha Bahadır Saraç. REGIME CHANGE IN THE INTEREST RATE-INFLATION RELATIONSHIP: A COMPARATIVE ANALYSIS IN TÜRKİYE USING THE SMOOTH LOCAL PROJECTIONS METHOD. Cumhuriyet Üniversitesi İktisadi ve İdari Bilimler Dergisi. 2026 Jul. 1;27(3):910-31. doi:10.37880/cumuiibf.1940735

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