Commonly it is accepted that interest rate is playing an important role for central banks when they struggle with inflation. The aim of this study is to examine Gibson paradox, which considers the strong positive correlation between the...
moreCommonly it is accepted that interest rate is playing an important role for central banks when they struggle with inflation. The aim of this study is to examine Gibson paradox, which considers the strong positive correlation between the price level measured by a price index and the long-term nominal interest rate for the Turkish economy and to understand the theoretical thesis about the direction of long-term relationship. So that consumer price index and twelve-month interest rate were used over the period 1988-2015 and ARDL test were applied. As a result of empirical analysis, the validity of Gibson paradox was approved. In addition, the long-run relationship has been detected to be one-way from general price level to nominal interest rate
