Yield Curve Spillovers And Macroeconomic Indicators: The Case of Türkiye

Abstract

This study investigates the dynamics of Türkiye’s yield curve and its interactions with domestic and foreign macroeconomic indicators between 2008 and 2021. Using data from 19 emerging market economies, including the U.S. and China, the research first estimates yield curve components—level, slope, and curvature—following the Diebold-Li (2006) framework. Then, employing a Global Vector Autoregression (GVAR) model with time-varying trade-weighted linkages, the study assesses how these components relate to macroeconomic variables. Generalized Impulse-Response Functions (GIRFs) and Orthogonalized Impulse-Response Functions (OIRFs) are used to interpret the direction and intensity of interactions. Key findings reveal that Türkiye’s yield curve is more influenced by domestic factors than external shocks. GIRF analysis shows a strong, bidirectional relationship between the level and slope components. Inflation is negatively associated with the slope, implying that higher inflation flattens or inverts the curve. The policy interest rate exhibits a weak but positive effect on the level. Notably, the domestic stock market significantly affects long-term rates, suggesting a link between investment sentiment and yield curve movements. External influences are identified but found to be economically marginal overall. OIRF analysis, which is theoretically robust, provides weaker and less consistent results than GIRFs, especially regarding foreign impacts. The study contributes to literature by offering a country-specific analysis of yield curve dynamics and monetary policy effectiveness in Türkiye. It suggests that monetary authorities can influence inflation via the policy rate through its transmission to yield curve components, though the robustness of this mechanism depends on the method used. Overall, the findings support the view that Türkiye’s yield curve has been primarily shaped by domestic macroeconomic conditions rather than global integration during the period under study