Browsing by Subject "Kalman Filter"

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Open Access
Effects of macroeconomic dynamics on stock returns : case of Turkish stock exchange market
(2003) Erdoğan, Esen
It has been widely accepted that the empirical validity of the efficient markets hypothesis significantly differ between developed and emerging markets. Macroeconomic factors are thought to play an important role in this context. Since the financial markets in developing countries can be characterized as not being deep and stable, changes in macroeconomic conditions can have important impacts on the performances of the stock exchange markets. The developments in ISE and other institutions combined with several structural breaks and financial crises surely change the dynamics of the relationship between these macroeconomic variables and ISE. Therefore, we take this discussion as our starting point and analyze the effects of several macroeconomic variables on ISE within a time-varying parameter models with GARCH specification. It is found that several financial crisis and unsuccessful stabilization attempts led to a structural break on the impact of macroeconomic developments on stock exchange performance. In the second part, we attempt to measure the stock exchange market volatility within the time varying parameter framework. The conditional variances exhibit information about the structural uncertainty in ISE. We report the series for this type of uncertainty in this section.
Open Access
Essays on macroeconomics
(2018-09) Taş, Mustafa Anıl
This dissertation consists of three essays on macroeconomics. The first essay models the term structure of interest rates in an international framework from a macro-finance perspective. Other essays focus on the Turkish economy. The second essay measures the potential growth rate of the Turkish economy. Finally, the third essay examines the stance of monetary policy in Turkey in the post-2001 period. In the first chapter, I develop a two-country ane term structure model that accounts for the interactions between the macroeconomic and financial variables of each country. The model features a structural preference side and reduced form macroeconomic dynamics. The economies are connected through covered interest parity. Using this framework, I provide an empirical application of the model using data from the United States and the United Kingdom. I quantify the extent to which economic dynamics in one country explain the other’s nominal term structure. I find that the variation in the bond yields in each country is explained mostly by domestic factors. The cross-country effects are more prominent in pricing of the U.S. bonds. In the second chapter, I estimate the potential growth rate of the Turkish economy using a bivariate filter. I define the potential growth as the output growth rate at which selected macroeconomic imbalance indicators do not diverge from their targets. This definition of the potential growth implies results that are substantially different than those suggested by the Hodrick-Prescott filter. I find that these imbalance indicators would not have deteriorated, had Turkey grown at much lower rates particularly after the Great Recession. I also find that for the last five years, Turkey’s potential growth rate is 3 percentage points below the trend growth rate on average. Finally, the results of this study are consistent with the growth target published in the recently announced economic plan of Turkey. The third chapter is a joint work with Refet Gürkaynak, Zeynep Kantur and Se¸cil Yıldırım-Karaman. In this chapter, we present an accessible narrative of the Turkish economy since its great 2001 crisis. We broadly survey economic developments and pay particular attention to monetary policy. The data suggests that the Central Bank of Turkey was a strong inflation targeter early in this period but began to pay less attention to inflation after 2009. Loss of the strong nominal anchor is visible in the break we estimate in Taylor-type rules as well as in asset prices. We also argue that recent discrete jumps in Turkish asset prices, especially the exchange value of the lira, are due more to domestic factors. In the post-2009 period the Central Bank was able to stabilize expectations and asset prices when it chose to do so, but this was the exception rather than the rule.
Open Access
Evidence for 'Flight to Quality' hypothesis within an inflation uncertainty modelling
(2003) Güler, Bülent
There is a great literature devoted to link between inflation uncertainty and interest rates. However, there are opposing findings about the relationship between inflation uncertainty and interest rates. Some of the studies find a positive correlation between them, while some of them find a negative correlation. In this paper, we analyzed the link between inflation uncertainty and spreads among riskier and safer bonds within a model of a timevarying parameter model with an ARCH specification. We divided inflation uncertainty into two parts, structural uncertainty and impulse uncertainty, as indicated in Evans (1991), firstly. We estimated the relationship between these types of uncertainties and spreads among riskier and safer bonds, using USA data. The results indicate us that both structural and impulse uncertainties have significant relationship with spreads between corporate bonds, the riskier bonds, and treasury bills, the safer bonds. Especially having a positive effect of impulse uncertainty on spreads shows an important evidence for ‘Flight to Quality’ hypothesis.
Open Access
GDP nowcasting using high frequency asset price, commodity price and banking data
(2011) Balkan, Binnur
Knowing the current state of the economy is important especially when we consider that GDP information comes with a lag of quarter. From this perspective, employing high frequency variables in GDP nowcasting may contribute to our knowledge of economic conditions, since they are timelier compared to GDP. This paper deals with nowcasting US GDP using an expectation maximization algorithm in a Kalman Ölter estimation, which includes asset prices, commodity prices and banking data as explanatory variables together with real variables and price indices. As a result of the estimations, asset prices and other high frequency variables are found useful in nowcasting US GDP contrary to previous studies. Model predictions beat the traditional methods with the medium size model, which includes Öfteen variables, yielding the best nowcast results. Finally, this paper also proposes a new route for achieving better nowcast results by changing system speciÖcations of the state variables.
Open Access
Spurious regression problem in Kalman Filter estimation of time varying parameter models
(2010) Eroğlu, Burak Alparslan
This thesis provides a simulation based study on Kalman Filter estimation of time varying parameter models when nonstationary series are included in regression equation. In this study, we have performed several simulations in order to present the outcomes and ramifications of Kalman Filter estimation applied to time varying regression models in the presence of random walk series. As a consequence of these simulations, we demonstrate that Kalman Filter estimation cannot prevent the emergence of spurious regression in time varying parameter models. Furthermore, so as to detect the presence of spurious regression, we also propose a new method, which suggests penalizing Kalman Filter recursions with endogenously generated series. These series, which are created endogenously by utilizing Cochrane’s variance ratio statistic, are replaced by state evolution parameter Tt in transition equation of time varying parameter model. Consequently, Penalized Kalman Filter performs well in distinguishing nonsense relation from a true cointegrating regression.
Open Access
Two essays on the link between inflation uncertainty and interest rates and effect of foreign income on economic performance of a small-open economy
(2005) Kılınç, Zübeyir
This study includes two studies on the relationship between inflation uncertainty and interest rates and examines the effects of foreign income on economic performance of a small open economy. In the literature, there is no consensus about the direction of the effects of inflation uncertainty on interest rates. The second chapter of this study states that such a result may stem from differentiation in the sources of the uncertainties and analyzes the effects of different types of inflation uncertainty on a set of interest rates for the UK within interest rate rule framework. Three types of inflation uncertainties – impulse uncertainty, structural uncertainty and steady-state uncertainty – are derived by using a time-varying parameter model with a Generalized Autoregressive Conditional Heteroskedasticity specification. It is shown that the impulse uncertainty is positively and the structural uncertainty is negatively correlated with the interest rates. Moreover, these two uncertainties are important to explain shortterm interest rates for the period of inflation targeting era. However, this time, the impulse uncertainty is negatively and the structural uncertainty is positively correlated with the overnight interbank interest rates, which is consistent with the general characteristic of the inflation targeting regimes. The evidence concerning the effect of the steady state inflation uncertainty on interest rates is not conclusive. The third chapter uses the same methodology of the second chapter and calculates the effects of those three types of inflation uncertainties on interest rate spreads. It is found that both the structural and steady-state inflation uncertainties increase interest rate spreads, while the empirical evidence for the impulse uncertainty is not conclusive. Finally, the last chapter examines how the changes in a large foreign economy affect the economic performance of a small country. It finds the values of effects by calculating impulse response functions of the domestic economy and confidence intervals for those functions. Turkey is chosen as the domestic economy and Germany, the US, and the industrial countries are used as proxies for the large economy. The results state that a positive shock in the foreign economy positively affects domestic economy, increases the inflation rates, and appreciates the real exchange rate.