ANALYSIS OF THE RELATIONSHIP BETWEEN INFLATION AND INTEREST RATES IN TURKEY: FOURIER APPROACH

Within the framework of inflation targeting regime officially implemented since 2006, the primary objective of the Central Bank Republic of Turkey is to achieve and maintain price stability. As a result of instrumental independence, the CBRT determines the monetary policy it would implement and the policy instruments it would use in achieving and maintaining price stability. In this context, The CBRT uses a policy mix including one-week repo rate, the interest rate corridor between O/N borrowing and lending rates, and reserve requirements to achieve price stability and to provide financial stability with regard to controlling of financial risks which have the potential to threat price stability. The aim of this study is to investigate the long-term relationship between the O/N repo rates to approximate interest rates and the consumer price index to approximate price changes during the period of 2005-2017. Using monthly data, the Fourier Co-integration Test is employed to test the relationship between O/N repo rates and CPI. The findings indicate that there is long-term relationship between O/N repo rates and CPI