Asymmetric Exchange Rate Policy in Inflation Targeting Developing Countries

In the last decades, many developing countries abandoned their existing policy regimes and adopted inflation targeting (IT) by which they aimed to control inflation through the use of policy interest rates. During the period before the crisis, most of these countries experienced large appreciations in their currencies. Given that appreciation helps central banks curb inflationary pressures, we ask whether central banks in developing countries have different policy stances with respect to depreciation and appreciation in order to hit their inflation targets. To that end, we analyze central banks’ interest rate decisions by estimating a nonlinear monetary policy reaction function for a set of IT developing countries using a panel threshold model. Our findings suggest that during the period under investigation (2002-2008), central banks in developing countries implementing IT tolerated appreciation by remaining inactive in case of appreciation, but fought against depreciation pressures beyond some threshold. We are unable to detect a similar asymmetric response for IT advanced countries suggesting that asymmetric policy stance is peculiar to IT developing countries. Although there is a vast literature on asymmetric responses of various central banks to changes in inflation and output, asymmetric stance with regards to exchange rate has not been analyzed yet in a rigorous way especially within the context of IT developing countries. In this sense, our study is the first in the literature and thus is expected to fill an important gap

The Impossible Trinity: Inflation Targeting, Exchange Rate Management and Open Capital Accounts in Emerging Economies

This paper contributes to the debate on macroeconomic management and capital account regulations in developing and emerging countries (DECs). It argues that the recommendation by neoclassical economists and international financial institutions (IFIs) to combine an inflation targeting regime with exchange rate management, whilst maintaining open capital accounts, is both impossible and potentially counterproductive. This, it shows with extensive semi-structured interviews with currency traders in Brazil and London, is due to the peculiar way such a regime shapes central bank interventions in the money and foreign exchange markets and the destabilising way these interventions interact with financial market expectations. The interview results also demonstrate that the guidelines issued by IFIs actually undermine, rather than aid, DEC central banks’ initial attempt to manage excessive exchange rate movements. These results support the long-standing argument by heterodox economists and critical international political economists that DECs need to make the exchange rate an explicit instrument and goal of their macroeconomic policy and complement it with comprehensive capital account regulations to reduce the destabilising impact of international capital flows. The interview results also give some concrete suggestions on how to do so

Enflasyon hedeflemesi rejimlerinde asimetrik döviz kuru müdahalesi : Türkiye örneği, 2002-2008

Especially, after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as implicit tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determinants of inflation under an inflation targeting regime, as a case study, this thesis analyzes the Turkish experience with the inflation targeting regime by using monthly data between 2002 and 2008. There are two main findings of this study. First, the evidence from a Vector Autoregressive (VAR) model suggests that the main determinants of inflation in Turkey during this period are supply side factors such as international commodity prices and the variation in exchange rate rather than demand side factors. Second, empirical findings suggest that the appreciation of the TL is related to the deliberate asymmetric policy stance of the Bank with respect to the exchange rate. Both the econometric analysis from a VAR model and descriptive statistics indicate that appreciation of the Turkish lira was tolerated during the period under investigation whereas depreciation was responded aggressively by the central bank.M.S. - Master of Scienc

Central Banking in Developing Countries After the Crisis: What Has Changed?. Unpublished manuscript

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Hareket algısındaki görsel-işitsel çağrışımların EEG korelatları

Cataloged from PDF version of article.Thesis (M.S.): Bilkent University, Department of Neuroscience, İhsan Doğramacı Bilkent University, 2018.Includes bibliographical references (leaves 42-46).The process of associative learning has been considered to be one of the promising research areas in neuroscience to understand human perception, sensory plasticity, and multisensory integration that affects the way of perceiving external environment. Evidence suggests that associative learning causes unexpected lowlevel sensory plasticity in brain. Yet, how this effect occurs in low-level visual motion areas remains unclear. In order to examine the effect of audiovisual associations on visual motion perception, we conducted an experiment in which subjects are exposed to pre association test, associative learning and post association test phases. Moreover, EEG was recorded simultaneously to investigate neural mechanisms behind this effect. In associative learning task, a particular sound (low-frequency or high-frequency) was accompanied with a specific direction of random dot motion (leftward or rightward), and participants were asked to attend both sound and direction. Pre- and post-association tasks in which auditory-only, visual-only, audiovisual trials were presented are identical. During these trials, participants were asked to decide the direction of moving dots with a keypress except in auditory-only trials. We hypothesized that there will be significant differences in responses between pre- and post-association phases in accord with associative pairings that were given in associative learning phase. T-test results validated our hypothesis with a significance level at 0.01 (p-value = 0.008). In terms of neural mechanisms behind this effect, we also hypothesized that this effect originates from feedback mechanisms. ERP results indicated that associative learning in uences early temporal processes (100-150 ms) to auditory only condition, and interaction effect occurs late in time after stimulus onset (around 500 ms). In this context, ERP results supports the hypothesis by revealing that modulation in early temporal areas transmits information to high level association areas that project information to low level visual areas, thus high latency is observed after stimulus onset.by Gaye Benlialper.M.S

Implicit asymmetric exchange rate peg under inflation targeting regimes: the case of Turkey

Especially after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting (IT) regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing IT regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilised as implicit tools even under IT regimes in developing countries? To answer this question and investigate the determinants of inflation under an IT regime, as a case study, this article analyses the Turkish experience with IT between 2002 and 2008. There are two main findings. First, the evidence from a vector autoregressive (VAR) model suggests that the main determinants of inflation in Turkey during this period are supply-side factors, such as international commodity prices and the variation in exchange rate, rather than demand-side factors. Since the Turkish lira (TL) was considerably over-appreciated during this period, it is apparent that the Turkish Central Bank benefited from the appreciation of the TL in its fight against inflation during this period. Second, our findings suggest that the appreciation of the TL is related to the deliberate asymmetric policy stance of the bank with respect to the exchange rate. Both the econometric analysis from a VAR model and descriptive statistics indicate that appreciation of the TL was tolerated during the period under investigation, whereas depreciation was responded aggressively by the bank. We call this policy stance under IT regimes 'implicit asymmetric exchange rate peg'. The Turkish experience indicates that as opposed to the rhetoric of central banks in developing countries, IT developing countries may have an asymmetric stance towards exchange rates and favour appreciation of their currencies to hit their inflation targets. In this sense, IT seems to contribute to the ignorance of dangers regarding over-appreciation of currencies in developing countries

Central Banking in Developing Countries After the Crisis What Has Changed

The aim of this chapter is to assess how the theory and practices of central banking have evolved in developing countries in response to the crisis of 2008_9. Our findings suggest that the recent experiences of both advanced countries and developing countries during and after the global economic crisis have exposed the problems within mainstream monetary theory. In response to the crisis, mainstream thinking has been revised considerably. In line with this, there is also a shift in central banking practices in developing world. As a result, central banks now have multiple goals and multiple tools in developing countries as well. Yet this shift is insufficient to trigger a major change in understanding and implementing monetary policy

Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey

Especially, after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as implicit tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determinants of inflation under an inflation targeting regime, as a case study, this paper analyzes the Turkish experience with the inflation targeting regime between 2002 and 2008. There are two main findings of this paper. First, the evidence from a Vector Autoregressive (VAR) model suggests that the main determinants of inflation in Turkey during this period are supply side factors such as international commodity prices and the variation in exchange rate rather than demand side factors. Since the Turkish lira (TL) was considerably over-appreciated during this period, it is apparent that the Turkish Central Bank benefited from the appreciation of the TL in its fight against inflation during this period. Second, our findings suggest that the appreciation of the TL is related to the deliberate asymmetric policy stance of the Bank with respect to the exchange rate. Both the econometric analysis from a VAR model and descriptive statistics indicate that appreciation of the Turkish lira was tolerated during the period unde