Reading Macroeconomics From the Yield Curve: The Turkish Case

TL;DR

This study investigates how the yield curve, represented by interest rate spreads, can predict GDP growth in Turkey, confirming a positive relationship and demonstrating its predictive accuracy for macroeconomic activity.

Contribution

It provides empirical evidence of the yield curve's predictive power on Turkey's GDP growth using linear regression analysis.

Findings

Yield curve slope positively correlates with GDP growth.

Interest rate spreads accurately predict Turkish economic activity.

Results align with existing literature on yield curve and growth relationship.

Abstract

This paper aims to analyze the relationship between yield curve -being a line of the interests in various maturities at a given time- and GDP growth in Turkey. The paper focuses on analyzing the yield curve in relation to its predictive power on Turkish macroeconomic dynamics using the linear regression model. To do so, the interest rate spreads of different maturities are used as a proxy of the yield curve. Findings of the OLS regression are similar to that found in the literature and supports the positive relation between slope of yield curve and GDP growth in Turkey. Moreover, the predicted values of the GDP growth from interest rate spread closely follow the actual GDP growth in Turkey, indicating its predictive power on the economic activity.