scholarly journals The Effects of Structural Shocks on Turkish Economy

2014 ◽  
Author(s):  
Bekir Aşık
Keyword(s):  
Interest Rate ◽  
Open Economy ◽  
Capital Requirements ◽  
Macroeconomic Fluctuations ◽  
Balance Growth ◽  
Structural Shocks ◽  
Turkish Economy ◽  
Dynamic Stochastic ◽  
Trend Growth

This paper investigates the role of the real business cycle dynamic stochastic general equilibrium model with different shocks for a small open economy. The main goal of this study is to compare the effects of different structural shocks on the macroeconomic fluctuations of Turkey. Different types of shocks are employed, such as temporary shocks, trend growth shocks, and world interest rate shock as driving forces. In addition to investigating the effects of different shocks, we consider the effects of working capital requirements and spread as friction. Variance decompositions are computed to assess the role of shocks in macroeconomic fluctuations. I fit the model to the data using Bayesian techniques to determine which shock has the most impact on the business cycles of Turkish economy over the period from the first quarter of 1988 to the last quarter of 2012. The main findings are: (1) output, consumption, and investment growth are mostly driven by the trend growth shocks and temporary shocks are less important. (2) Trade balance growth are driven by world interest rate shocks. (3) Real business model is not successful to replicate the some of the key features of economic fluctuations.

THE INTERNATIONAL IMPACT OF MACROPRUDENTIAL POLICIES

2021 ◽  
Author(s):  
Doriane Intungane
Keyword(s):  
Equilibrium Model ◽  
Capital Requirements ◽  
Dynamic Stochastic General Equilibrium ◽  
Time Varying ◽  
Credit Growth ◽  
Cross Border ◽  
Macroprudential Policies ◽  
Dynamic Stochastic ◽  
The Impact

The recent financial crisis started a global debate on the role of financial policies, which led to financial system reforms in many countries. These reforms mainly consisted of increasing the usage of macroprudential policies. This dissertation seeks to understand whether macroprudential policies in financially integrated countries reduced their vulnerability to the impact of external shocks. Chapter 2 empirically examines the impact of macroprudential policies on cross-border bilateral credit growth. Capital requirements and loan-to-value (LTV) ratios, in 15 lending countries and 34 borrowing countries between 2000 and 2014, are used in the analysis. The results show that in some countries, the increase of capital requirements is not effective in reducing international credit flows during periods of financial vulnerability. The impact of tightening LTV ratios is more heterogeneous across countries because LTV ratios are mainly used in the housing sector and not all countries change their LTV ratio frequently. Hence, cooperation across countries is necessary but also countries should make sure that the change of macroprudential policies targeting lenders and those targeting borrowers complement each other to avoid international leakages. Chapter 3 analyzes issues related to the international spillover of macroprudential policies through international banking activities using a two-country dynamic stochastic general equilibrium model with heterogeneous and time-varying macroprudential policies. The results show that a combination of capital requirements and LTV ratios is effective in reducing credit growth despite the existence of cross-border banking activities and heterogeneous implementation of capital requirements across countries. In addition, international coordination of capital requirements is also effective in reducing credit growth but less effective than a combination of capital requirements and LTV ratios. Chapter 4 focuses on the role of countercyclical LTV ratios in reducing transmission of shocks when international investors, holding domestic and foreign assets, face collateral constraint. Using a two-country dynamic stochastic general equilibrium model, the analysis demonstrates that time-varying LTV ratios can reduce the transmission of shocks.

scholarly journals TECHNOLOGY SHOCKS AND BUSINESS CYCLES IN INDIA

2017 ◽  
Vol 23 (5) ◽  
pp. 1721-1756 ◽  
Author(s):  
Shesadri Banerjee ◽  
Parantap Basu
Keyword(s):  
Interest Rate ◽  
Open Economy ◽  
Emerging Market ◽  
Small Open Economy ◽  
Annual Data ◽  
Technology Shocks ◽  
Demand Side ◽  
Aggregate Fluctuations ◽  
Dsge Model ◽  
Dynamic Stochastic

In this paper, we develop a small open economy New Keynesian dynamic stochastic general equilibrium (DSGE) model to understand the relative importance of two key technology shocks, Hicks neutral total factor productivity (TFP) shock and investment specific technology (IST) shock for an emerging market economy like India. In addition to these two shocks, our model includes three demand side shocks such as fiscal spending, home interest rate, and foreign interest rate. Using a Bayesian approach, we estimate our DSGE model with Indian annual data for key macroeconomic variables over the period of 1971–2010, and for subsamples of pre-liberalization (1971–1990) and post-liberalization (1991–2010) periods. Our study reveals three main results. First, output correlates positively with TFP, but negatively with IST. Second, TFP and IST shocks are the first and the second most important contributors to aggregate fluctuations in India. In contrast, the demand side disturbances play a limited role. Third, although TFP plays a major role in determining aggregate fluctuations, its importance vis-à-vis IST has declined during the post liberalization era. We find that structural shifts of nominal friction and relative home bias for consumption to investment in the post-liberalization period can account for the rising importance of the IST shocks in India.

Interest rate rules and equilibrium (in)determinacy in a small open economy: the role of internationally traded capital

2018 ◽  
Vol 18 (2) ◽  
Author(s):  
Wen-ya Chang ◽  
Hsueh-fang Tsai ◽  
Juin-jen Chang ◽  
Hsieh-yu Lin
Keyword(s):  
Interest Rate ◽  
Open Economy ◽  
Capital Mobility ◽  
Small Open Economy ◽  
International Capital ◽  
Interest Rate Rules ◽  
International Capital Mobility ◽  
Rate Feedback ◽  
Feedback Rule

Abstract This study develops a small-open-economy version of Benhabib, J., S. Schmitt-Grohé, and M. Uribe. 2001. “Monetary Policy and Multiple Equilibria.” American Economic Review 91: 167–186. We systematically explore the role of international capital mobility and the portfolio balance channel in terms of macroeconomic (in)stability when the government follows a commonly-adopted interest-rate feedback rule. In a one-traded-good model, the steady-state equilibrium, in general, is locally determinate; international capital mobility stabilizes the economy against business cycle fluctuations under a simple interest-rate feedback rule. In a two-good (traded and non-traded goods) model, the relationship between equilibrium (in)determinacy and the aggressiveness of interest rate rules is not monotonic, and crucially depends on households’ portfolio preferences. These results suggest that a unified interest rate rule can end up with very different consequences of macroeconomic (in)stability in an open economy from those in a closed economy.

scholarly journals Evaluation of Stackelberg Leader-Follower Interaction Between Policymakers in Small Open Economies

Ekonomika ◽  
2021 ◽  
Vol 100 (2) ◽  
pp. 101-132
Author(s):  
Metin Tetik ◽  
Reşat Ceylan
Keyword(s):  
Dynamic Simulation ◽  
Open Economy ◽  
Optimal Policy ◽  
Small Open Economy ◽  
Point Of View ◽  
Impulse Response Functions ◽  
Potential Growth ◽  
Policy Rules ◽  
Turkish Economy ◽  
Dynamic Stochastic

The problem of coordination between policymakers seems to have created fundamental problems related to economic and social costs, targeted inflation, potential growth, and a high budget deficit. To resolve these problems in this framework, it is important to see the results of the interaction between policymakers and to propose an optimal policy strategy. In this study, the interactions between monetary and fiscal policymakers are examined game theoretically within the framework of the New Keynesian model. The strategic interaction between these policymakers is assessed using the DSGE (Dynamic Stochastic General Equilibrium) model for a small open economy. From this point of view, the interaction between policymakers is assessed within the framework of hypothetical scenarios. The optimal monetary and fiscal policies for a small open economy are derived from the leader-follower mechanism solution known as the Stackelberg solution. Optimal Stackelberg policy rules derived for a small open economy contribute to the literature of economics. The performance of the game theoretically derived optimal policy rules is evaluated through dynamic simulation within the framework of counterfactual experiments. The parameters developed for the model are calibrated for the Turkish economy. Dynamic simulation of the models, the impulse response functions, and the social loss analysis shows that the optimal policy mix for the Turkish economy is when the monetary policymaker is the leader, and the fiscal policymaker is the follower.

THE ROLE OF FOREIGN DEBT AND FINANCIAL FRICTIONS IN A SMALL OPEN ECONOMY DSGE MODEL

2016 ◽  
Vol 61 (05) ◽  
pp. 1550077
Author(s):  
MYUNG-SOO YIE ◽  
BYOUNG HARK YOO
Keyword(s):  
Business Cycle ◽  
Open Economy ◽  
Risk Premium ◽  
Financial Frictions ◽  
Foreign Debt ◽  
Small Open Economy ◽  
State Level ◽  
Korean Economy ◽  
Dynamic Stochastic

We examine the role of foreign debt and financial frictions in the Korean business cycle using a small open economy DSGE (dynamic stochastic general equilibrium) model where domestic banks borrow external funds, denominated in foreign currencies, for a risk premium and make loans to domestic producers. We find that the Korean economy is ‘financially vulnerable’, which means that the risk premium increases when the domestic currency depreciates. As a result, depreciation could cause recession, rather than expansion, when there exist substantial amount of foreign debt or financial frictions. A simulation shows that the Korean business cycle would suffer less volatility with a lower steady-state level of foreign debt or no financial frictions.

scholarly journals Analysis of External Debt Sustainability in Mongolia: An Estimated DSGE Approach

2021 ◽  
Vol 13 (15) ◽  
pp. 8545
Author(s):  
Gunbileg Ganbayar
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
External Debt ◽  
Commodity Price ◽  
Structural Shocks ◽  
Debt Sustainability ◽  
Productivity Shock ◽  
Dynamic Stochastic ◽  
The Government ◽  
Household Preference

In this study, we assess the effects of the structural shocks on the external debt sustainability in Mongolia, based on an estimated small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model with the traded, the non-traded, and the mining sectors. The impulse response results show that the traded sector’s productivity shock, the commodity price shock, the mining output shock, and the foreign interest-rate shock have a decreasing effect on external debt accumulation in Mongolia, whereas the non-traded sector’s productivity shock, the household preference shock, and the government spending shock have an increasing effect on the same. Furthermore, we assess Mongolia’s external debt sustainability under the COVID−19 pandemic shock. Under our assumed pandemic scenario, Mongolia’s external debt will increase by 30% from its steady state over the next 10–28 quarters. Our recommended solution in this study is to develop the traded sector, instead of the mining sector, to maintain sustainability of the external debt and to decrease vulnerability of the economy.

scholarly journals THE INTERNATIONAL IMPACT OF MACROPRUDENTIAL POLICIES

2021 ◽  
Author(s):  
Doriane Intungane
Keyword(s):  
Equilibrium Model ◽  
Capital Requirements ◽  
Dynamic Stochastic General Equilibrium ◽  
Time Varying ◽  
Credit Growth ◽  
Cross Border ◽  
Macroprudential Policies ◽  
Dynamic Stochastic ◽  
The Impact

The recent financial crisis started a global debate on the role of financial policies, which led to financial system reforms in many countries. These reforms mainly consisted of increasing the usage of macroprudential policies. This dissertation seeks to understand whether macroprudential policies in financially integrated countries reduced their vulnerability to the impact of external shocks. Chapter 2 empirically examines the impact of macroprudential policies on cross-border bilateral credit growth. Capital requirements and loan-to-value (LTV) ratios, in 15 lending countries and 34 borrowing countries between 2000 and 2014, are used in the analysis. The results show that in some countries, the increase of capital requirements is not effective in reducing international credit flows during periods of financial vulnerability. The impact of tightening LTV ratios is more heterogeneous across countries because LTV ratios are mainly used in the housing sector and not all countries change their LTV ratio frequently. Hence, cooperation across countries is necessary but also countries should make sure that the change of macroprudential policies targeting lenders and those targeting borrowers complement each other to avoid international leakages. Chapter 3 analyzes issues related to the international spillover of macroprudential policies through international banking activities using a two-country dynamic stochastic general equilibrium model with heterogeneous and time-varying macroprudential policies. The results show that a combination of capital requirements and LTV ratios is effective in reducing credit growth despite the existence of cross-border banking activities and heterogeneous implementation of capital requirements across countries. In addition, international coordination of capital requirements is also effective in reducing credit growth but less effective than a combination of capital requirements and LTV ratios. Chapter 4 focuses on the role of countercyclical LTV ratios in reducing transmission of shocks when international investors, holding domestic and foreign assets, face collateral constraint. Using a two-country dynamic stochastic general equilibrium model, the analysis demonstrates that time-varying LTV ratios can reduce the transmission of shocks.

scholarly journals Demand and Defective Growth Patterns: The Role of The Tradable and Non-Tradable Sectors in an Open Economy

2014 ◽  
Vol 104 (5) ◽  
pp. 272-277 ◽  
Author(s):  
Sandile Hlatshwayo ◽  
Michael Spence
Keyword(s):  
Open Economy ◽  
Aggregate Demand ◽  
Value Added ◽  
Growth Patterns ◽  
Structural Elements ◽  
Total Income ◽  
Us Economy ◽  
The Us ◽  
Tradable Sector

This paper examines the underlying structural elements of US growth patterns, pre- and post-crisis. Prior to the recession, the US economy exhibited a defective growth pattern driven by outsized domestic demand. As domestic aggregate demand retreats to more sustainable levels relative to total income, the tradable side of the economy is a catalyst for restoring strong growth. A structural rebalancing is already underway; although it is only a third of the economy, the tradable sector generated more than half of gross gains in value-added since the start of the recovery. However, distributional issues loom on the horizon.

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