Factors Affecting Time Deposits in Turkey

THE CITY UNIVERSITY OF NEW YORK BROOKLYN COLLEGE ECONOMICS DEPARTMENT MS BUSINESS ECONOMICS ECONOMETRICS PROJECT REGRESSION ANALYSIS: FACTORS AFFECTING TIME DEPOSITS IN TURKEY ILYAS DOGAN 109965454 NEW YORK DECEMBER-2010 Abstract This paper examines the factors that impact the time deposits in Turkey by using the linear regression analysis. There are lots of elements which affect the time deposits. In my regression model, I used some of them such as; exchange rate, interest rate, consumer price index, wholesale price index and gold prices. These are my independent variables whereas time deposit is my dependent variable.

I also adjusted the US Dollar/ Turkish Lira exchange rate because Turkey started using The New Turkish Lira by dropping 6 zeros from the currency Turkish Lira on 01. 01. 2005. The reference of all variables is http://evds. tcmb. gov. tr/ Meanings of the variables as follows; Time Deposit( TD): Annually equivalent of monthly time deposits traded in banks. Exchange Rate (ET): New Turkish Lira equivalent of the average dollar exchange rate during the year. Interest Rate (IT): Annually equivalent of weighted 12-month term deposits interest rate. Wholesale Price Index (WPI): Annually percentage changes in wholesale price index.

Consumer Price Index (CPI ) : : Annually percentage changes in consumer price index. Gold Price (GP) : New Turkish Lira equivalent of the average gold price during the year. Variables are monthly data which contains 60 months from January 1998 to December 2002. Financial market in Turkey have started to get increased recently. After crisis, people began trusting the banking system and tried to gain more interest. This laid people to put out at interest their money. Time deposit is one of the most preferred ways by people to get interest on money. There are some factors affect people’s decisions.

I tried to explain those factors in my regression model. Theoretically; if the interest rate of the domestic currency increases and and revenue of domestic currency is estimated to be higher than exchange rate, demand on the time deposit will increase since the cost of keeping foreign currency will increase. Thus, exchange rate decreases which effects the demand on the time deposit positively. However , developing countries like Turkey can keep the interest rate high since they have a domestic dept problem. Turkey is a country that lives economic crisis almost every decade, even though it seems more powerful during the last decade.

Those crisis cause the domestic currency to depreciate and the inflation to increase. This situation makes exchange rate and time deposit to seem directly proportional although they are not theoretically. That’s why our expected sign for exchange rate’s coefficient is (? ) neither positive nor negative, whereas our expected sign for interest rate’s coefficient is (+) positive. WPI and CPI increases due to the inflation problem. Inflation is general and progressive increases in prices. When prices goes up WPI and CPI goes up as well. Therefore, our expected sings for both WPI and CPI’s coefficients are (+) positive.

Gold is a alternative investment tool for time deposits. If gold prices increases , time deposit decreases since people want to keep their money on something more profitable. Thus, coefficient of gold’s expected sign is (-) negative. Data |Month/Year |Time |Exchange |Interest |WPI |CPI |Gold | | |Deposit |Rate |Rate | | |Price | |1/1998 |4364322 |0,21216 |7. 819 |839. 1 |919. 4 |1344. 000 | |2/1998 |4343010 |0,22377 |7. 83 |877. 4 |960. 0 |1481. 250 | |3/1998 |4674915 |0,23593 |7. 754 |912. 7 |1001. 3 |1536. 250 | |4/1998 |5003764 |0,24608 |7. 783 |949. 3 |1048. 0 |1682. 500 | |5/1998 |5651035 |0,25252 |7. 698 |980. 2 |1084. 7 |1663. 000 | |6/1998 |6223797 |0,26131 |7. 254 |995. 5 |1111. 1 |1681. 250 | |7/1998 |6530015 |0,26892 |6. 98 |1020. 7 |1148. 4 |1733. 000 | |8/1998 |6481954 |0,27457 |7. 054 |1045. 3 |1193. 8 |1708. 750 | |9/1998 |6927147 |0,27595 |7. 966 |1101. 2 |1274. 0 |1748. 750 | |10/1998 |7616820 |0,27929 |7. 898 |1146. 8 |1351. 1 |1836. 000 | |11/1998 |8154435 |0,29496 |8. 025 |1185. 7 |1409. 1 |1925. 000 | |12/1998 |8956584 |0,30765 |7. 51 |1215. 1 |1455. 4 |1946. 250 | |1/1999 |9607832 |0,32206 |7. 901 |1258. 6 |1525. 3 |2015. 000 | |2/1999 |10052198 |0,34198 |7. 828 |1301. 0 |1573. 7 |2166. 250 | |3/1999 |10210431 |0,36086 |7. 901 |1352. 9 |1637. 5 |2275. 000 | |4/1999 |10601220 |0,38027 |7. 769 |1424. 4 |1717. 2 |2361. 000 | |5/1999 |11495901 |0,39599 |7. 66 |1469. 9 |1767. 7 |2415. 000 | |6/1999 |12286161 |0,41349 |7. 713 |1496. 5 |1825. 2 |2382. 500 | |7/1999 |13598131 |0,42762 |7. 690 |1556. 0 |1894. 9 |2402. 000 | |8/1999 |14181453 |0,43606 |7. 718 |1606. 8 |1974. 6 |2460. 000 | |9/1999 |15245729 |0,4545 |7. 194 |1700. 8 |2092. 8 |2561. 250 | |10/1999 |16138974 |0,46781 |7. 103 |1780. |2225. 2 |3160. 000 | |11/1999 |16480430 |0,49689 |7. 045 |1852. 7 |2318. 7 |3180. 000 | |12/1999 |17830763 |0,52837 |7. 211 |1979. 5 |2456. 6 |3235. 000 | |1/2000 |18221560 |0,5465 |4. 185 |2094. 0 |2575. 9 |3415. 000 | |2/2000 |17301408 |0,56511 |4. 154 |2179. 3 |2671. 3 |3812. 500 | |3/2000 |17448658 |0,58217 |3. 847 |2246. |2749. 3 |3820. 000 | |4/2000 |18057463 |0,59728 |3. 885 |2300. 5 |2813. 2 |3800. 000 | |5/2000 |17710637 |0,61906 |3. 882 |2339. 5 |2875. 6 |3806. 250 | |6/2000 |18874947 |0,61807 |4. 351 |2346. 4 |2895. 1 |3836. 000 | |7/2000 |20291823 |0,62944 |3. 608 |2370. 5 |2960. 1 |3887. 500 | |8/2000 |19772868 |0,6474 |3. 071 |2393. |3024. 4 |3962. 500 | |9/2000 |20489432 |0,6663 |4. 253 |2448. 3 |3117. 4 |4080. 000 | |10/2000 |21089343 |0,67901 |4. 149 |2516. 7 |3214. 0 |4075. 000 | |11/2000 |22243178 |0,68621 |4. 891 |2577. 2 |3333. 3 |4062. 500 | |12/2000 |23480237 |0,68098 |8. 120 |2626. 0 |3415. 5 |4087. 500 | |1/2001 |25799804 |0,67386 |5. 154 |2686. |3501. 1 |4000. 000 | |2/2001 |30354170 |0,74167 |34. 410 |2757. 6 |3564. 1 |4175. 000 | |3/2001 |30431241 |0,97063 |12. 444 |3035. 0 |3780. 5 |5496. 000 | |4/2001 |30194572 |1,21278 |9. 023 |3470. 8 |4171. 2 |6800. 000 | |5/2001 |30130229 |1,13523 |6. 991 |3689. 6 |4382. 0 |6800. 000 | |6/2001 |30749448 |1,21853 |6. 706 |3795. 6 |4519. |7290. 000 | |7/2001 |29292007 |1,32368 |6. 732 |3920. 6 |4627. 5 |7887. 500 | |8/2001 |30201554 |1,40432 |6. 625 |4059. 5 |4763. 5 |8580. 000 | |9/2001 |32789850 |1,47339 |6. 594 |4276. 7 |5044. 0 |9662. 500 | |10/2001 |34075655 |1,60401 |6. 460 |4564. 5 |5350. 3 |10400. 000 | |11/2001 |34237820 |1,52487 |6. 070 |4755. 5 |5576. |9520. 000 | |12/2001 |37199475 |1,45569 |5. 978 |4951. 7 |5756. 2 |9100. 000 | | 1/2002 |36906172 |1,37248 |5. 872 |5157. 4 |6062. 4 |8650. 000 | |2/2002 |38352285 |1,35322 |5. 797 |5289. 5 |6168. 7 |8950. 000 | |3/2002 |39743152 |1,36026 |5. 366 |5387. 9 |6242. 1 |8980. 000 | |4/2002 |41187439 |1,32091 |4. 963 |5485. 5 |6370. |9150. 000 | |5/2002 |41131889 |1,3929 |4. 822 |5508. 4 |6407. 3 |10020. 000 | |6/2002 |41477108 |1,52761 |4. 842 |5572. 0 |6444. 7 |10937. 500 | |7/2002 |41388531 |1,65708 |4. 873 |5720. 7 |6537. 6 |11425. 000 | |8/2002 |44287187 |1,64339 |4. 873 |5842. 8 |6680. 4 |11360. 000 | |9/2002 |44490093 |1,65093 |4. 884 |6024. 6 |6912. |11375. 000 | |10/2002 |45672480 |1,65484 |4. 884 |6213. 3 |7139. 9 |11450. 000 | |11/2002 |46322001 |1,61163 |4. 555 |6314. 3 |7347. 8 |11492. 000 | |12/2002 |47897696 |1,59125 |4. 518 |6478. 8 |7468. 6 |12466. 667 | Reference : http://evds. tcmb. gov. tr/ Regression |Variables Entered/Removed | |Model |Variables Entered |Variables Removed |Method | |D|1 |gold price, interest |. Enter | |i| |rate, wholesale price| | | |m| |index, exchange rate,| | | |e| |consumer price indexa| | | |n| | | | | |s| | | | | |i| | | | | |o| | | | | |n| | | | | |0| | | | | |a. All requested variables entered. | |b. Dependent Variable: time deposit | |Model Summary | |Model |R |R Square |Adjusted R Square |Std. Error of the Estimate | |Dimension0 | ANOVAb | |Model | |b. Dependent Variable: time deposit | |Coefficientsa | |Model |Unstandardized Coefficients |Standardized |t |Sig. | | | |Coefficients | | | | | Meaning of Coefficients E.

T : When other variables are constant; if exchange rate goes up 1 point , monthly deposits traded in banks goes up 6099834. 644 TRY( Turkish New Lira). I. T : When other variables are constant; if interest rate increases 1 point, monthly deposits traded in banks increases 222659. 295 TRY. W. P. I : When other variables are constant; if WPI goes up 1 point, monthly deposits traded in banks goes up 148. 641 TRY. C. P. I : When other variables are constant; if CPI goes up 1 point, monthly deposits traded in banks goes up 6279. 118 TRY. G. P : When other variables are constant; if GP goes up 1 TRY, monthly deposits traded in banks goes down 1534. 587 TRY. The regression results agree with our expected signs.

The negative intercept may indicate that when income goes down a certain level, people start withdrawing their deposit. Conclusion We have good t values. They all are confident at certain significance level. Variables estimated coefficients are significant in the expected direction. Our model is linear and unbiased. It is correctly specified and has an additive error term. The error term is normally distributed. There is no perfect multicollinearty among the variables. It has minimum variance since the size of the sample is enough. There is no redundant variable. Variables are consistent and normally distributed. That makes our model BLUE. R? is 0. 992 . This means the 99. % of the variation of the time deposit is explained by the variation of exchange rate, interest rate, WPI, CPI and gold price. It is large enough to take decision that model is an efficient model to estimate time deposit. Adjusted R? is 0. 991. That means overall fit of the equation is really good. If we check the ANOVA table we will see the F test value that is 1364. 410 . This value is has 100 % confidence interval. That situation also makes our hypothesis trustworthy. As a conclusion, we can state that monthly time deposits traded in banks is the function of exchange rate, interest rate, WPI, CPI and gold price. Those independent variables are really helpful to explain changes in time deposits in Turkey that is a still developing country.

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