Re-examination of the long-run purchasing power parity: further evidence from Turkey

In this article, we re-examine the empirical validity of the Purchasing Power Parity (PPP) theory for the Turkish economy. For this purpose, an empirical model is constructed using some contemporaneous estimation techniques such as multivariate co-integration and vector error correction methodology. Our estimation results reveal that the PPP can strongly be supported as a long-run stationary steady-state relationship for the Turkish economy.     

Cyclical Dynamics of the Turkish Economy and the Stock Market

Abstract

We analyze the cyclical dynamics of the Turkish economy and the stock market as well as their interactions. We use hidden Markov models that are robust to parameter instability arising from major shifts in economic policy, which have been typically observed in the Turkish economy. These models provide estimates of turning points for the growth, business, and stock market cycles. We identify three states of growth cycles and two states of business cycles in Turkey characterized by different mean estimates. We find that the economy went through five recessions since 1987. Crises are characterized by sharp drops in economic activity and are preceded by slowdowns. These crises are typically followed by strong recoveries during which the economy grows above its long-run average rate. We show that the Turkish stock market goes through three regimes having distinct risk-return dynamics. Bear markets associated with negative returns precede every recession with an average lead time of three quarters, suggesting that the stock market may be a useful forward-looking indicator of the Turkish economy.     

Money demand, the Cagan model, testing rational expectations vs adaptive expectations: The case of Turkey

This paper estimates the Cagan type demand for money function for Turkish economy during the period 1986:1–1995:3 and tests whether Cagan's specification fits the Turkish data using an econometric technique assuming that forecasting errors are stationary. This paper also tests the hypothesis that monetary policy was implemented in aiming to maximize the inflation tax revenue. Finally, the Cagan model is estimated with the additional assumption of rational expectations for Turkey for the considered period. First version received: March 1998/final version received: October 1998     

Determinants of international transmission of business cycles to Turkish economy

This study aims to investigate the channels through which international business cycles are transmitted to Turkish economy. Our analysis follows two steps: i) business cycle transmission is measured using Longest Common Subsequence (LCS) method, a pattern recognition algorithm that accounts for the nonlinear and time-varying nature of business cycles and ii) the potential mechanisms of propagation of international business cycles are examined by specifying a panel regression model in which the LCS measure of synchronization is used as the dependent variable. Applying several panel estimation methods to the bilateral data from 22 countries over the 1998–2009 periods, we find that both trade and financial similarities are significant in the transmission of business cycles to Turkish economy. Especially, the results highlight the role of trade integration indicating that Turkish business cycles are closely linked with the business cycles of the members of European Custom Union.     

Not-quite-great depressions of Turkey: A quantitative analysis of economic growth over 1968–2004

Following the great depressions methodology suggested by Kehoe and Prescott (2002, 2007), we use growth accounting and perfect foresight dynamic general equilibrium models to study growth performance of Turkey from 1968 to 2004. Our benchmark model without any frictions and taxes accounts for 86% of the observed change in the growth rate of GDP per-working age person and once we extend the model with taxes and capital adjustment costs it accounts for 60% of the observed reduction in hours worked per-working age person and 35% of the change in the growth of capital-output ratio. Also, we identify that the Turkish economy experienced a depression from 1976 to 1984 and the extended model performs remarkably well to account for the depression period. Our findings generally suggest that rigidities affecting capital accumulation and government policies using distortionary taxes have a crucial role in the evolution of various variables of the Turkish economy.     

Cyclical behavior of price–cost margins in the Turkish banking industry

Using a dynamic panel data framework, the cyclical behavior of the banks' price–cost margins in Turkey over the period 2002Q1–2008Q2 is analyzed. The findings provide evidence towards countercyclical behavior of the margins. This is important for the Turkish economy since the countercyclicality of banks' margins may deepen the contraction by constraining the credit opportunities over economic downturn periods. Furthermore, the control variables, monetary policy, market structure and financial deepening of the economy indicate significant effect on the price–cost margins of the banks. The findings also serve as evidence towards the “financial accelerator” mechanism in Turkish economy over the sample period.     

Analyzing the resource pull effects of devaluation under exchange control

This paper analyzes the resource pull effects of a discrete change in the exchange rate under conditions of exchange control and import rationing. A devaluation leads to contraction rather than expansion in import substituting subsectors if the predevaluation situation is characterized by effective inport rationing. The argument is illustrated using a multi-sector model of the Turkish economy.     

On Structural Sources of the 1994 Turkish Crisis: a CGE modelling analysis

This paper investigates the impact of the Turkish public sector imbalances on the evolution of the economic crisis during 1990–93. A computable general equilibrium model is used. The theoretical basis of the model rests upon the structuralist/Keynesian macro foundations. Its distinguishing features entail accommodation of oligopolistic mark-up pricing rules in the industrial sectors, and endogenous solution of capacity utilisation and unemployment levels through Keynesian mechanisms of effective final demand. The results of the model underscore the importance of intra-class relations of income distribution and conflict in the evolution of price movements in the Turkish economy. It is further argued that the sources of the capitalist in the administrative interventions of the state towards protection of the capitalist and rural incomes, which would otherwise be squeezed out in favour of wage-labour in the early 1990s.     

Comparative performances of EU-15 and Turkey: a PIN analysis

Turkey started the accession process with European Union (EU) in 2005. One of the main topics of EU Turkey negotiations was the economic convergence of Turkey to EU norms. This study devises and uses Panel Index Numbers (PIN) analysis to evaluate the performance and convergence prospects of Turkish economy in the face of EU-15 economies. As evaluation areas, we have selected two main macroeconomic indicators as GDP and Export. Our results have shown that, for both indicators, Turkish economy outperforms rest of the EU-15 economies, a point that should be valuable in the process of accession.     

Crisis and self-fulfilling expectations: The Turkish experience in 1994 and 2000–2001

In this paper we analyze the role of fundamentals and self-fulfilling expectations in the crisis episodes of Turkey in 1994 and 2001. The question is how much of the occurrence of a crisis can be attributed to market expectations and how much to fundamentals. The model is estimated using a Markov switching framework in which the devaluation expectations affect crisis probability via three different specifications. Such a framework which allows for sunspots performs better than a purely fundamental-based model. The study shows that besides the fundamentals in the economy, shifts in agents' devaluation expectations have played a crucial role and that a Markov switching model with constant transition probabilities provides better estimates for the Turkish currency crises.     

Economic growth and Kaldor's law: the case of Turkey, 1925–78

In this paper Kaldor's enine of growth hypothesis is examined and its validity is tested forr the Turkish economy. The results obtained, regardless of the specification and estimation techniques used, consistently support the hypothesis.     

Distributional and revenue raising arguments for tariffs

This paper (1) analyzes distributional and revenue-raising arguments for tariffs in a general equilibrium model of a small open economy, (2) characterizes tariff rates in an interesting special case to gain greater insight into their determinants, (3) uses numerical examples calibrated on Brazilian and Turkish data to illustrate the sensitivity of optimal policies to underlying economic characteristics and objectives of policy, and (4) quantifies the losses from unavailability of tariffs in small open economies.     

The North Will Rise Again: Pensions,Politics and Power in the 1980’s

I aim at contributing to the academic debate about the relationship between functional income distribution and economic growth in regard to the large and open economy of Turkey in the period from 1987 to 2006. To this end, I propose a simple post-Keynesian model, so as to test whether the Turkish economy is wage or profit-led. I find evidence that, while a rising wage has a positive effect on investment, it does not affect consumption in Turkey. Hence the combined effect of a rising wage share on domestic demand (investment plus consumption) is positive. However, since exports and imports are so sensitive to labor costs, as they are in the case of Turkey, the regime becomes profit-led.     

Financial Openness in Turkey

The purpose of this paper is to analyse the effects of financial liberalization on the financial and real sectors of the Turkish economy. The process of liberalization began over 15 years ago simultaneously with a stabilization programme that had been designed according to neoclassical model. The implementation addressed first foreign trade, then the domestic financial market and finally foreign capital movements. Contrary to theoretical expectations, the opening of the capital account induced adverse effects on financial intermediation, savings, investment, growth and foreign debt.     

The inflation-hedging properties of Turkish REITs

This study empirically tests the inflation-hedging abilities of Turkish REITs in comparison to the indices of common stocks listed on the Istanbul Stock Exchange (ISE) over the period December 1999 to December 2004. Two main factors motivate this study. First, compared to their counterparts in developed capital markets, Turkish REITs have some important tax incentives as well as flexibility in managing their portfolios. Second, the Turkish economy provides a rare and good opportunity to test the hedging behaviour of real estate stocks in periods of both high- and moderate-inflation rates. The empirical results show that Turkish REITs, in general, provide a better hedge against both actual and expected inflation than do the ISE common stock indices. Dividing the entire sample period into the high- and moderate-inflation sub-periods, we find that the hedging ability of REITs is better under high inflation than under moderate inflation.     

Anatomy of a balance-of-payments crisis : Application of a computable general equilibrium model to Turkey, 1978–1980

This paper analyses quantitatively the causes of the foreign exchange crisis in Turkey in the late 1970s through application of a multisector computable general equilibrium (CGE) model. The model incorporates some mechanisms that simulate the actual workings of the foreign exchange market during the turbulent foreign exchange disequilibrium period 1978–1980. It features the simultaneous operation of both quantitative controls and premium rationing schemes. Factors contributing to the foreign exchange crisis are analysed through counterfactual simulations which examine the implications for the Turkish economy of use of a flexible exchange rate, no oil price shock in the 1978–1980 period, and maintaining a constant price-level deflated affective exchange rate. Our results indicate that while exchange rate policy played an important role in bringing about the foreign exchange crisis, the influence of other factors was substancial.     

Optimal Export Taxes, Welfare, Industry Concentration, and Firm Size: A General Equilibrium Analysis

By using an imperfect-competition model, it is shown that an export tax, optimal in partial equilibrium, is upwardly biased and may not be optimal in a general equilibrium setting with free entry/exit. It is shown also that the export tax has an ambiguous impact on firm size. The results of an applied general equilibrium model for the Turkish economy suggest that the export tax estimated with the PE formula is larger by a small factor than the computed export tax. However, the export tax leads to an increase in firm size and, most importantly, to a social welfare loss.     

A quantitative analysis of Turkish Private Education Reform

A recent education policy Turkish government is wishing to undertake is to shut down all private supplementary education centers (SECs) unless SECs manage to convert into a private school. With this policy, the government is willing to increase equality of opportunity among students. We show quantitatively that the policy, in fact, leads to a decrease in equality of opportunity since SECs are given the option to convert into private schools. We use a political economy model of education at which households, heterogeneous with respect to exogenously set income, choose among a continuum of private schools differentiated by tuition and a public school. Households choosing the public school can privately supplement their child's education spending in any amount. Public school is free of charge, and its spending is financed by income tax revenue collected from all households. Income tax rate is determined by majority voting. Achievement of a child depends only on educational spending. We calibrate the model's parameters by matching certain targets from 2013 Turkish data. We then exogenously restrict the supplemental education spending to zero in a counterfactual experiment. We find that variance of achievement (or inequality of opportunity) increases by 23.51% and mean achievement decreases by 1.74%.     

Planning capital-labor substitution and intertemporal equilibrium with a non-linear multi-sector growth model

A non-linear multi-sector model, postulating sectoral production functions and price-responsive demand functions linked around an input-output matrix in a general equilibrium framework, is used to simulate capital-labor substitution on a growth path characterized by intertemporal equilibrium. It demonstrates how the ‘temporary equilibrium’ or ‘sequential temporary equilibrium’ form of models that allow substitution can be extended into an intertemporally indecomposable equilibrium model without abandoning interaction between prices and quantities in the determination of technology and demand. The model is applied to the analysis of the impact of changes in real-wage growth on the characteristics of the equilibrium growth path of the Turkish economy with special attention given to the employment problem.     

Did the rising importance of services decelerate overall productivity improvement of Turkey during 2002–2007?

This paper answers the question of what would have been the growth rate of aggregate productivity in Turkey between 2002 and 2007, had it realized China’s rates of productivity growth in agriculture, industry, and services. It does this in a three-sector general equilibrium model calibrated to the Turkish economy over the 2002–2007 period. The main findings are: (i) Turkey would have had much higher aggregate productivity growth over this period if it had experienced China’s service sector productivity growth; (ii) very low productivity growth rates in finance and in the non-market service sector are the main culprits behind Turkey’s weak service-sector performance.