Optimal versus adequate level of international reserves: evidence for Turkey

The determination of international reserve balance for emerging economies is part of the efforts to strengthen the immunity of these economies to crises. However, there is still evidence on crises even for the countries with large foreign reserves. It has usually been experienced that the countries with greatest need for reserves economize more than others on their holdings since they might underestimate the cost of crisis. In this study, the official international reserves of Turkey are tested against optimality and adequacy. During 1988–2002, the actual reserves fell short of both the optimal and the adequate levels. They are only optimal when the expected cumulative contraction is about 5.2% of real GDP under crisis. However, early evidence from emerging economies and Turkey show that crises hit more heavily. Hence, it is found that the current financial structure in Turkey such as the absence of capital controls and a highly dollarized banking system necessitates more foreign reserves for preventing any future economic and/or financial shocks.     

Trade, investment and growth: nexus, analysis and prognosis

Patterns of causation between income, export, import and investment growth for 39 developing countries are examined using model selection techniques which are based on ex ante predictive ability criteria to identify the best predictive model for each country. In particular, we look at the incidence of causation and reverse causation between various economic variables which are commonly believed to lead economic growth and find that there is less reverse causation from income to these variables than previously thought. We also construct an index of global business cycle conditions and find that models of countries with high trade exposure, growth rates and investment rates tend to gain in predictive ability from the addition of this variable.     

Knowledge spillovers, transboundary pollution, and growth

Trade in natural resources is construed as a dynamic game betweenNorth and South. Policies that promote growth in the North alsocause knowledge spillovers and transboundary pollution in theSouth. Cooperative and noncooperative Nash equilibria of thisstrategic trade game are simulated under various scenarios byparallel genetic algorithms to highlight the distortions inthe growth/pollution trade-off. Absent cooperation, both regionsbenefit when North simultaneously cuts waste and increases knowledgespillovers, impelling South to reciprocate by lower resourceprices.     

Time series decomposition and measurement of business cycles, trends and growth cycles

A study of business cycles does not require trend estimation and elimination, but a study of growth cycles does. Major cyclical slowdowns and speedups deserve to be analyzed, but the needed time series decomposition presents difficult problems, mainly because trends and cycles influence each other. We compare cyclical movements in levels, deviations from trend, and smoothed growth rates for both the quarterly real GDP and the monthly U.S. Coincident Index—using the phase average trend (PAT). Then we compare alternative trend estimates, deterministic and stochastic, linear and nonlinear, and the corresponding series of deviations from these trends. We discuss how the resulting estimates differ for U.S. growth cycles in the post-World War II period. The results of PAT show great similarity to the results obtained with the Hodrick-Prescott, local linear trend, band-pass filtering methods.     

Political Connection,Bank Credits and Growth: Evidence from Turkey

The pervasive existence of government‐owned banks in emerging economies is often justified by their provision of access to credit in remote and underdeveloped regions that are ignored by private banks. This paper analyses whether credits provided by government‐owned and private banks have a significant role in regional growth and whether this role changes in politically connected areas in Turkey. Our findings imply that private banks significantly improve the economic well‐being in all Turkish provinces regardless of their development level or their political connection with the ruling party. However, credits by government‐owned banks are found to be positively related to the per capita growth rate only in the less developed provinces that are advocates of the ruling political party and also developed but not politically connected provinces. These results suggest that government‐owned bank credits, as implied by the political view, are used for funding politically desirable projects or politically connected borrowers.