21 research outputs found
Relative Price Variability : The Case of Turkey 1994-2002
Relative price variability leads to inefficiencies in the allocation of resources that reduce real income (Fischer, 1981). Given the costs associated with relative price variability, the relation between inflation and relative price variability was extensively researched and a positive relation between the two was documented for many countries and for varying time periods. Furthermore, one of the main sources of relative price variability being differential speeds of price adjustment in different sub-sectors, renders the investigation of relative price variability valuable also in terms of understanding the inflationary dynamics. In this paper, highly disaggregated data based on 103 classification of Turkish CPI for the period between January 1994 and December 2002 are utilised. The statistical findings based on Theil (1967) measure of relative price variability, are analyzed from different perspectives : seasonal pattern, time aggregation, different sub-groups, e.g. tradable/non-tradable prices, administered/non-administered prices etc. Resulting stylized facts about recent dynamics of inflation are presented. The relation between relative price variability and inflation is verified by carrying out model-free regressions. The results show that there is a positive contemporaneous association between relative price variability and inflation in Turkey. Besides, inflation is found to Granger-cause relative price variability. These conclusions are shown to be robust to the degree of commodity aggregation.Relative Price Variability, Inflation, Turkish Inflation
Some Evidence on the Irrationality of Inflation Expectations in Turkey
This study aims to add to the understanding of inflation expectations in Turkey. We conduct several tests to understand whether economic agents use all the available information to forecast inflation. The answer is a lucid âNOâ: Using 5 different quantitative expectations series from 3 different surveys, we find that all the expectations series, except the one month ahead forecasts, are biased and inefficient. Furthermore, forecast errors in many cases are significantly correlated with exchange rate changes, revealing that agents do not take into account the lagged effects of the exchange rate movements on inflation while forming their expectations. That is, the role of exchange rate pass-through, as a determinant of inflation, is not well understood. These results also suggest that some form of deviation from rational expectations may be necessaryâat least during the disinflation periodâin modeling inflation dynamics.
Essays on international portfolio allocation and risk sharing
This thesis contributes to the theoretical literature that analyses the link between
international asset trade and international risk sharing. Despite the massive increase
in cross-border asset trade since the 1990's, consumption risk sharing across countries
remains limited. In standard international business cycle models, efficient risk sharing
requires that consumption should be higher in the country where it is cheaper to
consume, implying a high positive correlation between relative consumption and real
exchange rate, which is strongly rejected in the data. Recent contributions show that
it is possible to account for this so-called 'consumption-real exchange rate anomaly'
in models with goods and financial market frictions where international asset trade
is restricted to a single non-contingent bond.
Chapter 1 analyses whether this class of models can account for the anomaly
under a richer asset market structure where agents can trade in domestic and foreign
currency bonds. Even such a small departure from the single bond economy implies
too much risk sharing compared to the data although the number of assets that can be
traded is less than the number of shocks affecting each economy. Introducing demand
shocks alongside sector-specific productivity shocks can improve the performance of
the model only under specific parameter and monetary policy settings. Chapter
2 extends this analysis to study the implications of international trade in equities,
portfolio transaction costs and recursive utility.
Chapter 3 studies the interaction between monetary policy and foreign currency
positions in more detail. Different monetary policy regimes can lead to different
foreign currency positions by changing the cyclical properties of the nominal ex-
change rate. These external positions, in turn, affect the cross-border transmission
of monetary policy shocks via a valuation channel. The way export prices are set
has important implications for optimal foreign currency positions and the valuation
channel when prices are sticky and financial markets are incomplete.
Chapter 4 compares the international transmission of uncertainty shocks under
alternative asset markets with an emphasis on the behaviour of net foreign assets,
exchange rate and currency risk premium and shows that a model with restricted asset
trade performs better than a model with complete financial integration in matching
certain aspects of the data regarding the dynamics of these variables in response to
increased macroeconomic uncertainty
Essays on international portfolio allocation and risk sharing
This thesis contributes to the theoretical literature that analyses the link between international asset trade and international risk sharing. Despite the massive increase in cross-border asset trade since the 1990's, consumption risk sharing across countries remains limited. In standard international business cycle models, efficient risk sharing requires that consumption should be higher in the country where it is cheaper to consume, implying a high positive correlation between relative consumption and real exchange rate, which is strongly rejected in the data. Recent contributions show that it is possible to account for this so-called 'consumption-real exchange rate anomaly' in models with goods and financial market frictions where international asset trade is restricted to a single non-contingent bond. Chapter 1 analyses whether this class of models can account for the anomaly under a richer asset market structure where agents can trade in domestic and foreign currency bonds. Even such a small departure from the single bond economy implies too much risk sharing compared to the data although the number of assets that can be traded is less than the number of shocks affecting each economy. Introducing demand shocks alongside sector-specific productivity shocks can improve the performance of the model only under specific parameter and monetary policy settings. Chapter 2 extends this analysis to study the implications of international trade in equities, portfolio transaction costs and recursive utility. Chapter 3 studies the interaction between monetary policy and foreign currency positions in more detail. Different monetary policy regimes can lead to different foreign currency positions by changing the cyclical properties of the nominal ex- change rate. These external positions, in turn, affect the cross-border transmission of monetary policy shocks via a valuation channel. The way export prices are set has important implications for optimal foreign currency positions and the valuation channel when prices are sticky and financial markets are incomplete. Chapter 4 compares the international transmission of uncertainty shocks under alternative asset markets with an emphasis on the behaviour of net foreign assets, exchange rate and currency risk premium and shows that a model with restricted asset trade performs better than a model with complete financial integration in matching certain aspects of the data regarding the dynamics of these variables in response to increased macroeconomic uncertainty.EThOS - Electronic Theses Online ServiceGBUnited Kingdo
Exchange Rate Pass-Through in Turkey : Has it Changed and to What Extent?
This study analyses the impact of exchange rates on domestic prices in Turkey. We seek to demonstrate the variations (if any) in the exchange rate pass-through across different exchange rate regimes, identify the determinants of this change, and characterize the degree and extent of pass-through across different sub-sectors. Our empirical results reveal that the pass-through of exchange rates to domestic prices has declined in the post-2001 period in comparison with the earlier episodes âthanks to a decline in the âindexationâ behavior. These findings suggest that switching to floating exchange rate regime and implementing an ambitious disinflation policy have contributed, to a large extent, to the reduction in the pass-through. Nevertheless, the impact of exchange rate on inflation, especially in the traded good is still notable, pointing out that the effect of nominal exchange rate movement on relative prices have increased in the float period.Exchange rate pass-through, Time-varying parameters, Seemingly unrelated regressions, Disinflation, Floating exchange rate regime
Introduction: Special Issue on âMacroeconomics of Climate Changeâ
Climate change is one of the most serious risks facing humanity. Temperature rises can lead to catastrophic climate and natural events that threaten livelihoods. From rising sea levels to flooding, bush fires, extreme temperatures and droughts, the economic and human cost is too large to ignore. More than 190 world leaders got together in Glasgow during November 2021 at the UNâs COP26 climate change summit to discuss progress on the Paris Agreement (COP21) and to agree on new measures to limit global warming. In Paris, countries agreed to limit global warming to well below 2° and aim for 1.5° as well as to adapt to the impacts of a changing climate and raise the necessary funding to deliver on these aims. However, actions to date were not nearly enough as highlighted by the IPCC (2018) special report. The world is still on track to reach warming above 3° by 2100. As evident from figure 1, global temperatures have been on a steadily increasing path since the start of the 20th century and this process has substantially accelerated since the beginning of the 1980s. This has been unevenly distributed, with temperatures in the Northern hemisphere being a full 1°C higher than for the 1961â1990 average, whilst temperatures in the Southern hemisphere have increased by almost 0.5°C
Inflation expectations in Turkey: learning to be rational
Turkey implemented an ambitious restructuring of the economy in the past several years, including the adoption of inflation targeting along with a floating exchange rate regime. Inflation came down from almost triple digits to single digits between 2001 and 2005. This particular episode of the Turkish economy sets a genuine case study for investigating the possible changes in the behaviour of inflation expectations upon a regime shift. Accordingly, this study analyses inflation expectations in Turkey, focusing especially on the post-2001 transition phase. We first conduct classical tests of unbiasedness and efficiency using aggregate survey data between August 2001 and October 2007 to get a statistical benchmark for rationality; we find that classical tests reject full rationality hypothesis for all series except next month's Consumer Price Index (CPI) inflation expectations. Then, we carry out Time-Varying Parameter (TVP) estimates based on a Kalman filter to see how the coefficients in the classical test equations evolve over time. This framework allows us to see whether there is convergence to rationality in terms of unbiasedness and efficiency. We find that forecast performance has improved through time, as the coefficients on the test equations shows movement towards values implied by unbiasedness and efficiency hypotheses, supporting the learning hypothesis.