The effect of interest rate on output level and inflation in Turkey: Evaluation of monetarist and new keynesian perspective

In this paper, the relationship between inflation-interest rate and output level for the period between 2000M1-2015M12 in Turkey is evaluated in terms of Monetarist and New Keynesian perspective. These relationships among the variables are analysed through linear and non-linear methods. As a result of the analysis, it is concluded that the interest rate does not have a significant effect on the output level. Also, it was determined that there is a short-term as well as a long-term negative relationship from the interest rate towards inflation. It was concluded that the monetary policy cannot affect the real output, but the inflation. These results show that the Monetarist perspective is more valid for the post 2000 period in Turkey.