Is there a flight to quality due to inflation uncertainty?

After two types of inflation uncertainty are derived within a time-varying parameter model with GARCH specification, the relationship between inflation uncertainty and interest rates for safe assets is investigated. The results support the existence of a ‘‘flight to quality’’ effect.

The Price Puzzle in Emerging Markets : Evidence from the Turkish Economy Using Model Based Risk Premium Derived from Domestic Fundamentals

The recent studies by Blanchard (2004) and Favero and Giavazzi (2004) imply that a tight monetary policy consistent with an inflation-targeting framework in emerging market economies could actually increase the price level due to the lack of fiscal discipline and the associated high risk premium. We extend their arguments in two ways. First, we introduce a semi structural model with time varying parameters, where the risk premium is ‘unobserved’ and is derived within the system. Such an approach fits better with the volatile nature of the emerging market economies by allowing us to track down the time-varying effects of macroeconomic dynamics on both risk premium and other related variables. Second, we obtain the impulse response functions and analyze the implications of a tight monetary policy on the risk premium. Taking the Turkish economy as our reference point, we find that the arguments of Blanchard (2004) and Favero and Giavazzi (2004) seem to be valid.Risk Premium, Non-Linear State Space Models

Employing Extended Kalman Filter in a Simple Macroeconomic Model

In this study, the estimation power of Extended Kalman Filter is tested within a simple Keynesian macroeconomic model. After the model is written in a non-linear state space form, Extended Kalman Filter emerges as the appropriate methodology to estimate both state variables and the parameters. The simulation results suggest that such a methodology can also be employed in explaining more complex macroeconomic dynamics.Extended Kalman Filter

The Effectiveness of Foreign Exchange Interventions for the Turkish Economy : A Post-Crisis Period Analysis

This study has two purposes. First, it attempts to improve the literature on foreign exchange interventions of the central banks for the emerging market economies, which have not been studied in details. The Turkish economy in the post-crisis period constitutes a good example in this context. Second, it proposes a new methodology, a time-varying parameter model, to analyze the effectiveness of the foreign exchange interventions. When the results from such an exercise are compared with the ones obtained from an event-study analysis, we find that the purchase-based interventions seem to be successful especially after the financial markets were stabilized. In that sense, we detect an asymmetry regarding the effectiveness of interventions. About the relationship between the interest rates and the exchange rates, we find that the uncovered interest rate parity condition operates in an unconventional way supporting the views put forth by the new emerging markets literature.Foreign Exchange Interventions, Emerging Markets, Event Study and Time Varying Parameter Model

Causes and Effectiveness of Foreign Exchange Interventions for the Turkish Economy

Foreign exchange rate interventions of the central banks for the emerging market economies are studied only to a limited extent. However, due to the different characteristics of these economies, especially in terms of the exchange rate dynamics, such an analysis can reveal important information. This study analyzes both the causes and the effectiveness of foreign exchange interventions of the Central Bank of the Republic of Turkey in the post-crisis period. We find that, as officially stated by the Central Bank, the main motivation behind the interventions is the excessive volatility in the exchange rate. Regarding the effectiveness of the interventions, the large and isolated purchase-based interventions seem to be effective in decreasing the volatility in the exchange rate.Foreign Exchange Interventions, Emerging Markets, Probit Analysis, and GARCH Models

Estimating Output Gap for the Turkish Economy

This paper presents a time-varying parameter methodology for constructing an estimate of output gap for Turkey. We employ the extended Kalman filter technique in a multivariate setting in which economic content is utilized by the inclusion of inflation and output gap dynamics. As a by-product, we characterize time varying nature of output gap and inflation dynamics. Several results emerge: First, we show that estimating the potential output and output gap in a multivariate setting has several advantages over univariate techniques such as the HP filter. Second, our output gap estimates confirm the historical boom-bust cycles in Turkey and point out that business cycle displays sharp turning points rather than exhibiting a smooth pattern. Third, output gap seems to have contributed dramatically to the disinflation process in 2002-2004. Fourth, estimated time varying parameters suggest that, recently, the relation between real interest rates and the output gap seems to have been converging to a more conventional one. What is more, relative impact of output gap on inflation dynamics has been rising since 2001. Putting aside the “fiscal dominance” argument, these latter findings bode well for the effectiveness of the monetary policy within the prospective inflationtargeting framework.

Is there a flight to quality due to inflation uncertainty?

After two types of inflation uncertainty are derived within a time-varying parameter model with GARCH specification, the relationship between inflation uncertainty and interest rates for safe assets is investigated. The results support the existence of a ‘‘flight to quality’’ effect

Is there a flight to quality due to inflation uncertainty?

After two types of inflation uncertainty are derived within a time-varying parameter model with GARCH specification, the relationship between inflation uncertainty and interest rates for safe assets is investigated. The results support the existence of a ‘‘flight to quality’’ effect

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 –thanks to a decline in the “indexation” 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

A Service of zbw Does Time Inconsistency Problem Apply For Turkish Monetary Policy? Does Time Inc onsistency Problem Apply For Turkish Monetary Poli cy ? Does Time Inconsistency Problem Apply For Turkish Monetary Policy?

Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Abstract We analyze the implications of the time inconsistency problem for the Turkish monetary policy in the last two decades. After deriving the restrictions that the Barro and Gordon model imposes on a time series model for inflation and output, we show that the time inconsistency problem can explain both the short-run and the long-run behaviour of inflation and output in the Turkish economy. The results also reveal that the Turkish monetary policymakers have put more emphasis on output stability than price stability in the last decade. JEL Classification: E31, E52, E6