5 research outputs found
Measuring the impact of monetary policy on the lira exchange rates
Ankara : The Department of Economics, Bilkent University, 2010.Thesis (Master's) -- Bilkent University, 2010.Includes bibliographical references leaves 23-24.Measuring the impact of monetary policy on the exchange rate is complicated
due to the simultaneous response of monetary policy to the exchange
rate and the possibility that both variables respond to other omitted variables.
Ignoring these problems may lead to biased results. Given the shortcomings
of commonly-used identiÖcation techniques, this paper uses an identiÖcation
method based on the heteroscedasticity in the high-frequency data. This
methodology which aims to identify the exchange rate response to monetary
policy is based on the increase in the variance of the policy shock on monetary
policy committee meeting dates. IdentiÖcation through heteroscedasticity gives
more accurate estimates and the results of this paper provide a cross-check
for previous Öndings in the literature. The results suggest that while statistically
there exist some bias in previous estimates, qualitatively the conclusion
drawn by the previous literature, that the e§ect of monetary policy on the lira
exchange rates is small, is veriÖed.Özcan, GülserimM.S
Optimal Policy Implications of Financial Uncertainty
In addition to the stabilization of inflation and output gap, the responsibility of preventing financial crises and providing stable financial system is assumed by the central banks. In the aftermath of the Great Recession, the policymakers gave financial stability mandate more prominence to preemptively obliterate the fluctuations in the financial market. New models with alternative policy tools have emerged during this period to analyze the impact of financial shocks, and their linkages with the real economy. However, for the policymaker, it might not be possible to verify these models with existing information, which leads to uncertainty. This paper proposes robust optimal policy under uncertainty in response to financial and inflation shocks by acknowledging financial stability as an explicit objective of monetary policy. To do so, we extend the framework of De Paoli and Paustian (2017) by introducing model misspecification. We show that model ambiguity in the financial side requires a passive monetary policy stance. However, if the uncertainty originates from the supply side of the economy, an aggressive response of interest rate is required. We also show the contribution of an additional tool to the dynamics of the economy
Optimal Policy Implications of Financial Uncertainty
In addition to the stabilization of inflation and output gap, the responsibility of preventing financial crises and providing stable financial system is assumed by the central banks. In the aftermath of the Great Recession, the policymakers gave financial stability mandate more prominence to preemptively obliterate the fluctuations in the financial market. New models with alternative policy tools have emerged during this period to analyze the impact of financial shocks, and their linkages with the real economy. However, for the policymaker, it might not be possible to verify these models with existing information, which leads to uncertainty. This paper proposes robust optimal policy under uncertainty in response to financial and inflation shocks by acknowledging financial stability as an explicit objective of monetary policy. To do so, we extend the framework of De Paoli and Paustian (2017) by introducing model misspecification. We show that model ambiguity in the financial side requires a passive monetary policy stance. However, if the uncertainty originates from the supply side of the economy, an aggressive response of interest rate is required. We also show the contribution of an additional tool to the dynamics of the economy
Makroekonmi üzerine makaleler
Cataloged from PDF version of article.Thesis (Ph.D.): Bilkent University, Department of Economics, İhsan Doğramacı Bilkent University, 2017.Includes bibliographical references (leaves 111-119).This dissertation consists of four essays on macroeconomics with a special
focus on monetary economics, and shows the rationale behind non-optimality
of expectation formation both empirically and theoretically.
The first essay is empirical, and studies the role of inflation experience in the
formation of inflation expectations in the euro area by investigating whether
and to what extent inflation expectations of different forecasters are affected
by the inflation they observe in the area they are residing in. We exploit
the fact that many forecasters provide forecasts of the euro area inflation and
these forecasters are in different firms, located in different countries. Hence
there is a spatial dimension in the inflation experience of the forecasters. In
particular, we first focus on the expectations of professional forecasters from
different countries and ask whether their forecast errors are correlated with
the observed inflation in the forecaster’s country at the time the expectation
was formed. We find that current home inflation unduly affects expectations
of next year’s euro area inflation, which may be because forecasters think euro area is more like their own country than it actually is (spatial) and/or
think inflation is more strongly auto correlated everywhere than it actually
is (temporal). We devise tests to decompose this effect into i) spatial error
and ii) temporal error. We provide evidence showing that the source of this
error is exclusively the temporal dimension. Forecasters perceive the world
to be more serially correlated than it actually is for their home country, and
for other countries as well which results in more pronounced and forecastable
forecast errors. They understand the spatial dimension of inflation correctly.
The second essay analyzes whether and how model uncertainty affects the
amplification mechanism of the New Keynesian models. A first finding on a
benchmark New Keynesian model with staggered price setting is that a robust
optimal commitment policy necessitates more aggressive policy under a
demand shock. Further, bringing additional persistence into the model deteriorates
the effectiveness of monetary policy. Hence, allowing for either habit
formation or partial indexation of prices to lagged inflation rate requires a
stronger response for the policy to a demand shock. Together with the specification
doubts, in order to reassure the private sector and signal that it will
stabilize the fluctuations in the output gap, the policymaker reacts more aggressively
as persistence rises. Although inflation persistence does not change
the impact of model uncertainty, habit formation in consumption eliminates
-even reverses- the impact of uncertainty on the policy reaction to a supply
shock. The policymaker always attributes less importance to nominal interest
rate inertia when there are concerns about model uncertainty.
The third essay analyzes how the optimal behavior of a central bank changes
if the central bank has a concern for robustness regarding model uncertainty
when there is a possibility of a regime switch in the economy in which the
transmission mechanism of monetary policy weakens. The aim is to stress the
expectational effects arising from the regime-switching structure. The framework
allows identifying the contribution of time-varying doubts about model
misspesification on top of the risk of a future weakening of the policy transmission.
The result implies a more active policy stance to reduce the possibility to
experience a deterioration of monetary transmission mechanism even in normal
times.
The fourth essay takes a different turn and measures the monetary policy
transmission mechanism in Turkey. Quantifying the impact of policy decisions
on financial markets is complicated because of the simultaneous response of
policy actions to the asset prices, and possible omitted variables that both
variables respond to. This chapter applies a heteroscedasticity-based generalized
method of moments (GMM) technique for financial markets in Turkey to
overcome these problems. This approach is based on the heteroscedasticity of
the policy surprises on monetary policy committee meeting dates to identify
the financial market reaction to monetary policy. The findings are used as
a cross-check for the widely-used identification technique, namely the OLSbased
event study. The results suggest that event study estimates are biased
for some asset returns.by Gülserim Özcan.Ph. D