The Exchange Rate: A Shock Absorber or Source of Shocks in Turkey?

This study investigates the role of the exchange rate as shock-absorber as opposed to a source of its own shocks in Turkey during the period from 1990 to 2009 by employing a structural VAR framework with long-run and short-run restrictions. We find that the economic shocks have predominantly been asymmetric relative to one of the largest trading partner, the US. Our results provide evidence of the fact that while the major source of variability in exchange rates in the pre-2001 crisis period is mainly nominal shocks, a large proportion of the exchange rate variability can be attributed to supply and demand shocks in the post-2001 crisis period. This suggets that, rather than reacting to shocks to the foreign exchange market, such as shifts in risk premia, the exchange rate moves mainly in response to the real shocks during the post-2001 crisis period. Hence, there is a sizeable role for exchange rate stabilization during this period, absorbing those shocks and therefore requiring opposed monetary policy responses.     

Deposit insurance and moral hazard problem: the case of Turkish banking system

We investigate the effect of full deposit insurance introduced in 1994 on the financial performance of Turkish commercial banks. We construct a model, under reasonable assumptions, with deposit insurance where banks undertake excessive risk –?moral hazard risk. Empirical investigation using experimental design approach supports our moral hazard hypothesis. Our findings indicate that banks subject to the moral hazard behaviour show significant increases in foreign exchange position risk and deterioration in capital adequacy relative to their benchmark after introduction of full deposit insurance system. We relate this excessive risk-taking to the moral hazard behaviour by commercial banks. The research results indicate that complete deposit insurance system distorts the incentive structure of commercial banks and thus, prevents proper functioning of market discipline mechanism and leads to the taking excessive risk-taking.     

Free-Trade Agreements in a Model of Trade,Migration and Politics

This paper uses a probabilistic voting model to investigate voting for a free-trade agreement between a labor-abundant country and a capital-abundant country. Migration from the labor-abundant country to the capital-abundant country increases the probability of a free-trade agreement, with lower migration costs leading to more migration and a higher free-trade probability. On the other hand, if a lower probability of free trade is caused by an increased voter bias against free-trade candidates, then there is less migration. A dynamic extension of the model is also investigated.     

MARKUPS AND WELFARE COSTS OF BUSINESS CYCLES IN TURKEY

The paper, using a simple theory‐based measure of the variations in aggregate economic efficiency in a New Keynessian structure, analyses the nature of the business fluctuations and estimates their welfare costs in Turkey during the period 1998–2009. The measure contains two components: a price markup and a wage markup. It seems that the latter mainly drives the fluctuations in Turkey. The paper also shows that inefficient fluctuations in the allocation of resources do generate moderate welfare costs on average. However, the aggregate efficiency costs increase much more during deep recessions.     

The hidden cost of smoking: Rent premia in the housing market

In this article, we provide novel evidence on the additional costs associated with smoking. While it may not be surprising that smokers pay a rent premium, we are the first to quantify the size of this premium. Our approach is innovative in that we use text mining methods that extract implicit information on landlords’ attitudes to smoking directly from Zoopla UK rental listings. Applying hedonic, matching, and machine-learning methods to the text-mined data, we find a positive smoking rent premium of around 6%. This translates into £14.40 of indirect costs, in addition to £40 of weekly spending on cigarettes estimated for an average smoker in the United Kingdom.     

African economic development in a comparative perspective

Conventional explanations of poor African economic performancegenerally fail to pay adequate attention to causal mechanismsof growth, decline and stagnation. Many African countries experiencedinvestment booms after independence but, in contrast to EastAsian newly industrialising economies, these were not sustainedowing to failure to establish a virtuous growth circle involvingcomplementary increases in savings and exports. Structural adjustmentprogrammes dismantled stat-mediated mechanisms of accumulationwithout putting viable alternatives in place, and failed totackle the structural constraints which impede productivitygrowth in agriculture. A new policy approach, drawing on theexperience of both post-colonial and adjustment periods, isnecessary.     

Return and volatility spillovers among the East Asian equity markets

This article examines the extent of contagion and interdependence across the East Asian equity markets since early 1990s and compares the ongoing crisis with earlier episodes. Using the forecast error variance decomposition from a vector autoregression, we derive return and volatility spillover indices over the rolling sub-sample windows. We show that there is substantial difference between the behavior of the East Asian return and volatility spillover indices over time. While the return spillover index reveals increased integration among the East Asian equity markets, the volatility spillover index experiences significant bursts during major market crises, including the East Asian crisis. The fact that both return and volatility spillover indices reached their respective peaks during the current global financial crisis attests to the severity of the current episode.     

Chinese exports and productivity gains: panel evidence

This paper examines the impact of imports from China on the labour productivity levels of importers, using unbalanced data from 1994 to 2006. It is hypothesised that imports from China increase importer countries' labour productivity levels. Using cross‐section, fixed and random‐effect models, a statistically significant, positive relationship is found between the share of a country's imports from China and labour productivity in the manufacturing sector of that country. Moreover, it is found that imports from China have a larger impact on China's main Asian‐Pacific trade partners and countries with higher manufacturing shares in their total exports.