New Keynesian small open economy: Turkish case
Author
Ersoy, Sedat
Advisor
Lee, Sang Seok
Date
2016-06Publisher
Bilkent University
Language
English
Type
ThesisItem Usage Stats
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Abstract
Turkey experienced substantial declines in inflation after 2002. Was it due to good policy, good luck, or both? To address this question, we incorporate stochastic volatility into a small open new Keynesian model of Monacelli (2005). As demonstrated by Fernandez-Villaverde, Guerron-Quintana, Rubio-Ramirez (2010), volatility shocks are an importance source of macroeconomic fluctuations so they need to be accounted for in order to examine the good luck hypothesis rigorously. Our estimated model suggests that both good policy and good luck played roles in bringing down the inflation.