Output, the Real Exchange Rate, and the Crises in Turkey

Since the 1980s, most emerging economies have experienced economic crises associated with large, prolonged current account deficits and real exchange rate misalignment. Eventually these governments ended up devaluing national currencies. Empirical evidence from developing countries suggests that devaluation, in most cases, have been contractionary due to demand-side and supply-side effects. This paper studies the Turkish experience since the 1980s, and based on the results of a VAR analysis, finds that devauations were indeed contractionary.Turkey, real exchange rate, crisis, contractionary devaluations

How Do Individuals Choose Banks? An Application to Household Level Data from Turkey

This paper uses a multinomial probit model to analyze individuals' choice of banks based on the types of banking services they use, their own characteristics, and their own perceptions about important factors in banking. Previous studies on this topic, which are limited in number, concentrate on the U.S. where financial markets are deep. This analysis uses a unique individual level data set from a nation-wide survey implemented after the 2001 crisis in Turkey, of which one major component was bank failures. Hence, it provides the first set of evidence on the topic in an emerging market context. The study groups banks into three categories: public banks, large private banks and small private banks, among which the latter is perceived to be the potentially risky group. Investigating individuals' choice among these three types, the paper uncovers that while individuals tend to prefer small private banks on the basis of high interest rates, they tend to avoid them on the basis of trust. However, higher branch density and closeness negatively affect the choice of small private banks. Additionally, individual's choice of public banks as opposed to large private banks seems to have been positively influenced mostly by being older, being retired, receiving salary/pension, and valuing special services for farmers and craftsmen while it seems to have been negatively influenced by the use of certain services, valuing friendliness of the staff, and living in more developed regions where there is variety in terms of the financial institutions.Multinomial probit; banking sector; bank choice; household survey; Turkey

Output, the Real Exchange Rate, and the Crises in Turkey

Since the 1980s, most emerging economies have experienced economic crises associated with large, prolonged current account deficits and real exchange rate misalignment. Eventually these governments ended up devaluing national currencies. Empirical evidence from developing countries suggests that devaluation, in most cases, have been contractionary due to demand-side and supply-side effects. This paper studies the Turkish experience since the 1980s, and based on the results of a VAR analysis, finds that devauations were indeed contractionary

Financial Sector Deepening and Economic Growth: Evidence from Turkey

This paper analyzes the effects of financial sector deepening on economic growth using a province-level data set for 1996-2001 on Turkey. This period is associated with a weakly regulated and relatively unsupervised expansion of the banking sector which led to the 2001 financial crisis. Contrary to findings in the previous literature, our results indicate a strong negative relationship between financial deepening-both public and private-and economic growth. In light of the developments in the period of analysis, this result is not surprising, as the main function of the banking sector at that time was to provide financing for the Turkish Treasury, which channeled these funds to the government-albeit mainly for rent distribution purposes. However, it is important to note that the growth of private banking sector needs yet to be examined separately, as government ownership of banks may distort the development of the banking sector as a whole. Yet, it is possible to conclude that financial development may not always contribute to economic growth, and the conditions under which such a contribution takes place should be investigated further.Financial sector; Economic growth; Panel data; GMM; Turkey

Exchange Rate Forecasting: Evidence from the Emerging Central and Eastern European Economies

There is a vast literature on exchange rate forecasting focusing on developed economies. Since the early 1990s, many developing economies have liberalized their financial accounts, and become an integral part of the international financial system. A series of financial crises experienced by these emerging market economies ed them to switch to some form of a flexible exchange rate regime, coupled with inflation targeting. These developments, in turn, accentuate the need for exchange rate forecasting in such economies. This paper is a first attempt to compile data from the emerging Central and Eastern European (CEE) economies, to evaluate the performance of versions of the monetary model of exchange rate determination, and time series models for forecasting exchange rates. Forecast performance of these models at various horizons are evaluated against that of a random walk, which, overwhelmingly, was found to be the best exchange rate predictor for developed economies in the previous literature. Following Clark and West (2006, 2007) for forecast performance analysis, we report that in short horizons, structural models and time series models outperform the random walk for the six CEE countries in the data set