Browsing by Subject "Inflation (Finance)"

Now showing 1 - 4 of 4

Open Access
Central bank independence, financial market development and inflation
(2008) Küsmen, Gamze
Central bank independence (CBI) and inflation relation has long been a debate and is established in many studies, such as Bade and Parkin (1982), Alesina (1988, 1989), Grilli, Masciandaro, and Tabellini (1991), and Cukierman, Webb and Neyaptı (1992). Although these studies address the negative relation between CBI and inflation, they do not consider the effect of the development level of financial markets on this relation. Posen (1995) considers the effect of financial market development by using effective financial opposition to inflation formed by the inflation-averse groups. He tests the effect of this variable on CBI and inflation simultaneously. He claims that the variable, which decreases inflation is effective financial opposition to inflation (when used with CBI) rather than CBI. Thus, he states that rather than analyzing the direct relation between inflation and CBI, the effect of effective financial opposition to inflation on CBI and inflation should be investigated. Based on this study, this thesis looks at the effect of financial market development (FMD) both on CBI and on the relation between CBI and inflation by using alternative indicators for FMD. We find that there is a significant and positive relation between CBI and FMD for non-transition countries. Moreover, although Posen (1995) states that CBI does not have a significant effect on inflation when EFOI is included as an additional explanatory variable, we find evidence that both FMD and CBI have a significant effect on inflation. However, the results of the estimations are not robust to changes in samples.
Open Access
Exchange rate pass-through in Turkey : asymmetric cointegration analysis
(2009) Dinççağ, Ayşegül
In this thesis, exchange rate pass-through in Turkey is analyzed using Johansen (1988) and Engle-Granger (1987) two step cointegration procedures. As a result of the analysis, evidence is found for a cointegrating relationship between exchange rates and prices. In addition, asymmetries are tested in the model and it is shown that depreciations lead to a higher degree of pass-through compared to appreciations. In order to analyze the effect of 2001 crisis, structural break tests are applied to the model. It is found that the degree of exchange rate pass-through has decreased significantly since 2001, due to improving conditions and decreasing inflation in the Turkish economy and the reduction in the “indexation” behavior of price setting agents.
Open Access
Heterogeneity in inflation persistence and optimal monetary policy
(2009) Alp, Sevim Kösem
In ation persistence di ers substantially across sectors. This paper analyzes the relevance of sectoral in ation persistence di erentials for optimal monetary policy using a two-sector sticky price model, which generalizes the models existing in the literature by introducing in ation persistence to both sectors. Heterogeneity in in ation persistence results from introduction of di erent price setting mechanisms across sectors. The literature suggests that in purely forward looking models, when the degree of nominal rigidity is uniform across sectors, it is optimal to target the CPI in ation. In this paper, the degree of nominal rigidity, which is computed according to the approximate measure proposed by Benigno and Lopez-Salido (2006), is uniform across sectors but the same rigidity is produced by di erent combinations of price change frequency and backward looking behavior. Based on a second order approximation to the utility function, rst the fully optimal monetary policy is computed. Then, using the fully optimal policy as a benchmark, the performance of the CPI in ation targeting rule proposed by Benigno and Lopez- Salido and the optimal in ation targeting policy are compared under di erent parameter combinations culminating to the same degree of nominal rigidity but generating di erent degrees of in ation persistence across sectors. Welfare analysis shows that adopting CPI in ation targeting instead of optimal in ation targeting implies a signi cant increase in deadweight loss. This loss is highest when one of the sectors has in ation persistence close to zero.
Open Access
Implications of global financial crisis on inflation targetting framework
(2012) Yağcıbaşı, Özge Filiz
Aside from its devastating effects on global economy, global financial crisis has also shaken the mainstream economic theory. After the crisis, policies implemented by governments and Central Banks, issues of financial stability, impacts of international capital flows and exchange rates have become the center of macroeconomic research. This thesis examines the impact of global financial crisis on the IT framework. The aim is to discuss the imperfections and defections in the framework and propose extensions. In this context, a small open economy DSGE model, calibrated for Turkey during 2003- 2012 is proposed. The base model is extended to capture dynamics of Turkish economy better. Since, trade and credit channels of transmission mechanism of crisis are the most powerful channels for the contagion of the crisis to Turkish economy, inclusion of net international investment position (to the problems of households and entrepreneurs) and imported capital good (to the production function) strengthen the explanatory power of the model considerably. Moreover, to address whether allowing Central Bank to respond exchange rates yields gains in terms of output and inflation stabilization, an augmented Taylor rule which incorporates exchange rates is constructed. Responses under the benchmark model where Central Bank uses a traditional Taylor rule and an augmented Taylor rule are obtained. To provide a reference in interpreting the findings of the model, a Vector Auto Regression analysis is performed with interest rates, inflation, output level and exchange rates as endogenous variables. Finally, results of the model experiments and VAR are compared. The results indicate that, the model with the augmented Taylor rule can help to smooth business cycle fluctuations more effectively than conventional Taylor rule but, in some cases, Central Bank may encounter with a tradeoff between output gap and inflation.