Dept. of Economics - Ph.D. / Sc.D.
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Item Open Access 3+1 Essays on the Turkish economy(Bilkent University, 2005) Yücel, Mustafa ErayThis dissertation comprise of four essays. The first essay studies the relationship between treasury auction maturity and auction interest rates. Using the Turkish auction data from 1988 to 2004, a reciprocal linkage between auction interest rates and maturities is observed, especially for the 1995-2000 period. This suggests that under an adverse shock, treasury decreases the auction maturity in order not to increase interest rates too much. A change in this reciprocal relationship is also reported for the post-2001 era. The second essay assesses the effect of USD-Euro parity on a small open economy for an economy where its exports are predominantly denominated in Euros and imports are denominated in USD. The empirical evidence suggests that a positive innovation in USD-Euro parity appreciates the local currency, decreases inflation and increases output. The third essay studies the relationship between on-budget and off-budget expenditures in Turkey and concludes that information content of the budget deficit statistics is not empty; however, it might be misleading in assessing fiscal stance for Turkey. The final essay investigates the connection between Turkish industrial production performance and the success of a popular Turkish football team, namely Fenerbahce. The success of Fenerbahce is interpreted as a proxy for the workers' mood or morale. Performing a transfer function analysis on my monthly data set, I reveal a positive feedback from Fenerbahce's success, which proxies workers' mood/morale, to economic performance. Evidence of the effects of games against domestic rivals on industrial performance is not statistically significant.Item Open Access Alternatives in debt management : investigation of Turkish debt in an overlapping generations general equilibrium framework(Bilkent University, 2003) Voyvoda, EbruThe purpose of this dissertation is to investigate the fiscal policy alternatives on debt management, cohort welfare and growth for the Turkish economy. The dissertation is decomposed into two major parts. The first part outlays the issue of debt management and examines the macroeconomic effects of the current austerity program in Turkey, and illustrates the sensitivity of the program targets to growth shocks. The second part takes one step further to develop fiscal policy alternatives on debt management with emphasis on “productive expenditures” of the public sector and endogenous sources of growth. To this end, a large-scale, overlapping generations general equilibrium model with intertemporally optimizing agents and open capital markets, calibrated to the Turkish economy in 1990s, is developed. The results indicate that the current fiscal program based on the primary surplus objective succeeds in constraining the explosive dynamics of debt accumulation, yet suffers from serious trade-offs on growth and fiscal targets. The main suggestion of this study is that alternatives of fiscal programming do exist and it is important to carefully weigh the dilemmas and merits of each of these alternatives.Item Open Access Analysis of cooperative behavior when utility is semi-transferable(Bilkent University, 2018-05) Dede, YaseminThe primary purpose of this study is to analyze both cooperative and nonco- operative games under semitransferable utility. In game theory literature, utility seems so far to have been assumed not to be transferable at all in noncoopera- tive games, while both fully transferable and nontransferable utility are con- sidered in the context of cooperative games. There are, however, an abundance of real life situations, where utility is partially transferable. Here we introduce the notion of semitransferable utility, which encompasses full-transferability and nontransferability as its two extreme special subcases. We explore and exem- plify what changes some well-known equilibrium notions undergo when one allows utility to be only partially transferable. In particular, we relate core allocations in a convex cooperative transferable utility (TU) game to their counterparts in a corresponding strategic context, to show that, for each core allocation of a given TU game, there is a strategic form game, where that allocation survives, while almost all other allocations are eliminated.Item Open Access Asymptotic expansions for test statistics and tests for normality based on robust regression(Bilkent University, 1999) Önder, A. ÖzlemThis dissertation focuses on two different topics in econometrics. The first one is presented in Chapter 2 and is related to higher order asymptotic theory. The power of the Lagrange multiplier, Wald and likelihood ratio tests for the first order autoregressive model is compared through the approximations to the distributions of these three tests. The adequacy of the approximation is examined. The Wald and likelihood ratio tests are found to have superior performance than the Lagrange multiplier test. The comparisons are done according to stringency of the test statistics. As a second topic in Chapter 3, the dissertation examines the use of residuals from robust regression instead of OLS residuals in test statistics for the normality of the errors. According to simulation results their improvement over standard normality tests is found only in specialized circumstances. The applications on real data set show these conditions occur often enough in practice.Item Open Access A computational investigation of optimal parameters in pension reform(Bilkent University, 2000) Kiraci, ArzdarThe purpose of this dissertation is to develop a computational framework to identify a set of parametric reform options to rehabilitate publicly run, pay-as-you-go-based pension systems under alternative strategies for reform involving once-and-for-all as well as gradual changes in pension parameters. The techniques developed are applied to the Turkish pension system, which is particularly interesting as it already faces a severe financial crisis despite a relatively young population. The results confirm the need for urgent reform.Item Open Access Computer intensive techniques for model selection(Bilkent University, 1998) Başçı, SıdıkaThere are three essays in this dissertation. In the first one, which appears in Chapter 2, a comparison of finite sample performances of six model selection criteria for Autoregressive (AR) processes exists. Simulation results report the effects of being parsimonious while selecting the model on forecasting. Moreover, in the chapter the assumption of normality, which can be seen in all of the previous theoretical and emprical studies, is relaxed and performances of the criteria under non-normal distributions are investigated. The second essay is presented in Chapter 3. In this essay three new model selection criteria are suggested where cross-validated estimates of variances are used. In the chapter, a comparison of the finite sample performances of these new criteria with the already existing ones is presented. The main concern of the third essay, that appears in Chapter 4, is detecting structural change when the change point is unknown. In the chapter, we derive some Bayesian tests to detect structural change with unknown change point under the assumptions of different prior distributions.Item Open Access Economics of the patent system(Bilkent University, 2000) Dilek, Ali NihatSince knowledge has “public good” characteristics, it is shown that the price system cannot determine the efficient allocation and production of knowledge. As a result, alternative allocative mechanisms are proposed as solutions to the public goods problem. But knowledge differs from classical public goods. Because of these differences, various arrangements have been proposed to deal with allocational problems in the production of knowledge. One of these arrangements refers to the patent system, where the society is granting private producers of new knowledge exclusive rights to the use of their creations, thereby forming conditions for the existence of markets in intellectual property and enabling the originators to collect fees for the use of their work by others. The thesis is about the economics of patent protection. After considering the economics of knowledge and discussing the history of the patent system and characteristics of the U.S. Patent Law, the thesis studies the international trade dimensions of intellectual property. Thereafter, partial and general equilibrium models of the patent system are developed for the study of the characteristics of the patent system and for the analysis of the Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement. It is shown that welfare cost of the patent system increases with increases in patent duration, degree of love of variety of the society, and the country size. The North - South patent protection model developed in the thesis, deals with possible effects of patent duration on technological differences between these poles. The findings imply that, technological lag between developed and developing countries is non-decreasing in global patent duration.Item Open Access The effects of reference points on fairness judgments(Bilkent University, 2014) Akar, BetulIn this study, we empirically investigate the effects of reference points on fairness judgments with the help of the vignette technique. Specifically, we examine (i) whether reference points have influence on fairness judgments or not, (ii) if and how counter-intuitive reference points influence fairness judgments, and (iii) how the asymmetry of reference points shape fairness judgments. For that purpose, we use a within-subject design, in which participants are confronted with three versions of vignette: vignettes without reference point, vignettes with salient reference point, and vignettes with counter-intuitive reference point. Consequently, our findings suggest that (i) the reference points significantly influence fairness judgments, (ii) introducing counter-intuitive reference points moderate the salience of reference points, and (iii) the asymmetry of salient reference points has a concave relationship with fairness judgments, while the asymmetry of counter-intuitive reference points does not affect fairness judgments.Item Open Access Essays on bargaining theory(Bilkent University, 2018-05) Özcan Tok, ElifBargaining refers to a situation where two or more agents try to decide over how to divide a surplus generated by the economic transactions among these agents. There are two major approaches to bargaining problems: cooperative and non-cooperative approach. The former one focuses on the axioms that a bargaining outcome should satisfy and it is initiated by Nash (1950). The latter one attempts to specify the bargaining procedure and it is pioneered by Stahl (1972) and Rubinstein (1982). This dissertation consists of five essays. The first three essays employ the non-cooperative bargaining approach; the remaining ones employ the cooperative bargaining approach. In the first essay, we study an infinite horizon bargaining game on a network, where the network is endogenously formed. Two specifications of the cost structure regarding the link formation is investigated: zero cost and non-zero cost. The equilibrium of the game is obtained for both specifications. Lastly, we focus on efficiency issue and characterize the efficient networks. In the second essay, an infinite horizon bargaining game between buyers and sellers on a two-sided supply chain network is analyzed where the valuations of the buyers are heterogeneous. We prove that the valuations of the buyers and the network structure have an impact on the equilibrium outcome. In the third essay, we investigate the emergence of reference points in a two-player, infinite horizon, alternating offers bargaining game. The preferences of players preferences exhibit reference-dependence, and their current offers have the potential to in uence future reference points of each other. However, this in uence is limited in that it expires in a finite number of periods. We describe a subgame perfect equilibrium that involves an immediate agreement. We study the in uence of expiration length and reference points on equilibrium strategies and outcomes. In the fourth essay, we study the salience of the reference points in determining the anchors and aspirations in a bargaining problem by introducing two parameters which capture these effects. In the cooperative bargaining literature, the disagreement point or the reference point is employed as an anchor while the ideal (or utopia) point or the tempered aspirations point as an aspiration. In this essay, a bargaining problem with a reference point is studied incorporating these two parameters and hence a family of bargaining solutions is obtained. Consequently, several characterizations for each individual member of this family is proposed. In the fifth essay, we introduce the iterated egalitarian compromise solution for two-person bargaining problems. It is defined by using two well-known solutions to bargaining problems, the egalitarian solution and the equal-loss solution, in an iterative fashion. While neither of these two solutions satisfy midpoint domination {an appealing normative property{ we show that the iterated egalitarian compromise solution does so. To sum up, this dissertation contributes to the diversified fields and practices of bargaining theory.Item Open Access Essays on endogenous time preference and strategic interaction(Bilkent University, 2013) Turan, Agah RehaThis thesis includes three self contained essays on the existence and qualitative properties of equilibrium dynamics under endogenous time preference. In the Örst essay, we reconsider the optimal growth model proposed by Stern (2006). We prove the almost everywhere di§erentiability of the value function and uniqueness of the optimal path, which were left as open questions and show how a small perturbation to the price of future oriented capital qualitatively changes the equilibrium dynamics. Almost none of the studies on endogenous time preference consider the strategic interaction among the agents. In the second essay, by considering a strategic growth model with endogenous time preference, we provide the su¢ cient conditions of supermodularity for dynamic games with open-loop strategies and show that the stationary state Nash equilibria tend to be symmetric. We numerically show that the initially rich can pull the poor out of poverty trap even when sustaining a higher level of steady state capital stock for itself. Lastly, in the third essay, we consider the socially determined time preference which depends on the level of Ösh stock and characterize the basic Öshery model under this setup. We provide existence of collusive and open-loop Nash equilibria and compare the e¢ ciency and qualitative properties of them.Item Open Access Essays on forward guidance(Bilkent University, 2014) Akkaya, YıldızThis dissertation consists of three essays on forward guidance, central bank verbal guidance on future policy rates, and shows how economies respond to it both theoretically and empirically. In the first essay the effects of forward guidance on real economy through interest rate uncertainty is studied as explicit numerical guidance lowers the uncertainty around future interest rates. To analyze the effects of such a policy a New Keynesian model framework incorporating interest rate uncertainty is developed. The results show that a decrease in the uncertainty of interest rates is expansionary in its own right, independent of the level of interest rates the central bank commits to. Thus, distinct from the literature, a new channel for the effectiveness of forward guidance is suggested. The second essay studies the question of whether the optimal amount of interest rate uncertainty is always zero, or whether monetary policy makers may benefit from an increase in the uncertainty. For this purpose a two-country open economy New Keynesian model with interest rate uncertainty is developed, and the effects of interest rate uncertainty on capital flows and exchange rates are studied. The results emphasize that the impact of an increase in the volatility of interest rate mimics the impacts of an increase in the level of the interest rate, and this suggests that uncertainty about the policy rate path can be used by the central bank as a policy tool. The third essay is empirical, and analyses the sensitivity of the interest rates of various maturities to monetary policy uncertainty, which depends on the language used in the monetary policy statements. To measure market responses to the announcements, I first calculate monetary policy surprises and uncertainty surprises by using Federal Funds Futures and Eurodollar Options, respectively. In the event-study analysis it is shown that the reduction in the variability of monetary policy rate expectations due to the explicit content of the statements, has significant effect on the long-term treasury notes.Item Open Access Essays on growth and macroeconomic dynamics(Bilkent University, 2015-09) Özer, MehmetThis dissertation is composed of four essays on economic growth and macro- economic dynamics. The first essay analyzes how the dynamic strategic in- teractions among agents a¤ect the long-run distribution of wealth in terms of catching up and the transitional dynamics. It is shown that incorporating the strategic behavior among agents leads to the wealth level of the initially poor and the rich households to be the same at the stationary state. Extending the model by incorporating relative wealth concern; the resulting equilibria depends the valuation of relative wealth concern by each individual and it is proved that under some plausible conditions the catching up occurs thanks to the strategic interaction in the form of open-loop. The stability of these two models are carried out for arbitrary number of people in the economy. In the second essay studies the e¤ects of above mentioned strategic interac- tion in Ramsey model with "Easterlin hypothesis". It is shown that strategic interaction among agents in the economy leads to a change not only in the distribution of wealth but also in the transitional dynamics substantially. The obtained complex dynamics is in the form of Hopf bifurcation which is one of the main tool to explain the economic fluctuations. Third essay of this thesis introduces Stone-Geary Preferences with an endoge- nous reference level of consumption in an Ak model in which reference level of consumption is an increasing function of the capital. It is shown that the result- ing equilibrium presents richer dynamics under such a Stone-Geary preferences. It is proved that endogenous reference level leads to global and local indetermi- nacy: economies starting with di¤erent initial conditions does not necessarily converge to the same steady state and also economies starting with the same initial conditions does not necessarily follow the same transition path. The aim of the fourth essay is to analyze the e¤ects of a pure public good that reduces the subsistence level of consumption on the long run equilibrium and the optimal tax rate. It is shown that although the steady state amount of public good is higher for the first best allocation, the subsistence level of consumption is the same with that of the second best equilibrium. On the other hand, the capital stock and the consumption of the private good are higher for the first best equilibria. Another important result of the essay is the "government revenue-tax rate" locus with a dynamic threshold which depends on the total factor productivity (TFP). The optimal amount of tax rate that maximizes the revenue of the government is an increasing function of the TFP and thus revenue maximizing tax rate varies across countries.Item Open Access Essays on implementability and monotonicity(Bilkent University, 2009) Pasin, PelinIn this thesis we study the implementation problem with regard to the relation between monotonicity and implementability. Recent work in the field has shown that the implementability of a social choice rule strongly depends upon the compatibility between the monotonicity structures of the social choice rule and of the solution concept according to which implementation takes place. Different degrees of monotonicity of the social choice rules and game theoretic solution concepts can be determined via a generalized monotonicity function, strongest of which is called self-monotonicity. In this study, we determine the unique self-monotonicity of the Nash equilibrium concept and show that the monotonicities of a social choice rule are inherited from the unique selfmonotonicity of the Nash equilibrium concept via the mechanisms that implement it. In particular, we show that the essential monotonicity is inherited via the Maskin-Vind type mechanism which is widely used in the characterization results. We also give a new characterization of strong Nash implementable social choice rules via critical profiles. We show that coalitional monotonicity when conjoined with three more conditions is both necessary and sufficient for implementability. Finally we determine a subset of subgame perfect Nash implementable social choice rules that satisfies conditions defined obtained by critical profiles. The results that are obtained in this thesis strongly support the view that implementation theory can be rewritten in terms of monotonicity and that this provides a better understanding of the theory.Item Open Access Essays on international economics(Bilkent University, 2015) Özer, Seda KöymenThis dissertation consists of three essays on international economics. In the rst chapter, the long-run e ects of trade liberalization and trade-induced skill-biased technological change on wages and unemployment are studied by augmenting a heterogeneous rm trade model with job search and unemployment. The model predicts that trade liberalization has asymmetric wage effects on the two types of workers: it increases wage inequality in favor of skilled workers. Also, unemployment rate in the skilled-labor market falls to a greater extent, implying a change in the skill composition of unemployment in both trade partners. The second chapter aims to unearth the underlying causes of high levels of the current account de cit by investigating the export performance of Turkish rms. First, a cross-country analysis reveals that Turkey performs poorly compared to its competitors in generating a suitable business environment, promoting innovation and skills, and providing easier access to nance all of which are known to contribute signi cantly to stimulating export performance. Using a data set from the Productivity and the Investment Climate Private Enterprise Survey in 2005 and the Business Environment and Enterprise Performance Survey in 2008/2013, it is con rmed that product innovation, foreign ownership, the use of foreign inputs, and having a better marketing strategy are associated with higher probability of exporting. Also, conditional on exporting, export sales increase with foreign ownership. The third chapter studies the import dependency of Turkish manufacturing exports in 2000s. By using TIVA database provided by OECD-WTO, it shows that compared to its peers (such as Czech Republic, Hungary) Turkish manufacturing exports depend less on imported intermediates. However, Turkey requires more intermediate imports than its peers in order to increase its exports relative to GDP. Using data from various sources (TIVA, Comtrade and TurkStat), the second part of the chapter provides a detailed analysis of import dependency in three key industries, namely the transport equipment, textiles and food. The results show that Turkey mostly specializes in production and exports of low value added and low-tech activities within these industries. To increase its exports and domestic value added embodied in exports, Turkey needs to move towards higher value added and technologically more advanced stages of production in the global value chain.Item Open Access Essays on macroeconomics(Bilkent University, 2015-09) Kantur, ZeynepThis dissertation consists of three essays on two topics in macroeconomics. The first essay focuses on the monetary policy implications in an aging society. The second and third essays revisit the famous Shimer puzzle in a theoretical and an empirical framework in a different perspective. The first essay shows the impact of aging on effectiveness of monetary policy. To do so, it introduces an OLG-DNK framework where the demand side is represented by a two period overlapping generations setup and the supply side of the economy follows a New Keynesian framework. The model enables the study of the interaction of monetary policy with demographics in a coherent general equilibrium model. The main finding is that this merger of two basic strands of the macroeconomics literature implies monetary policy should be expected to be less effective as societies age since the interest rate sensitivity of real economic activity declines as the population ages. The second essay studies the effect of employment-to-employment ows in a New Keynesian model with labor market frictions. Although New Keyne sian models with labor market frictions found an increase in unemployment and a decrease in labor market tightness in response to a positive technology shock (which appears to be in line with the recent empirical findings), the volatilities of these variables are not as high as their empirical counterparts. In that regard, we assume two types of firms which offer different wage levels, thereby incentivizing low-paid agents to search on-the-job. Differently from the literature, the main source of wage dispersion is the assumption of different bargaining powers of firms. The proposed model generates a higher volatility of unemployment and labor market tightness in response to a positive technology shock compared to the model without on-the-job search. Moreover, it is shown that bargaining power and on-the-job search intensity have an amplifying effect on the unemployment rate. Finally, the last essay is an empirical application of the theoretical model proposed in Chapter 3. This essay revisits the Shimer (2005) puzzle by covering a longer period, 1951-2014, than Shimer's exercise. Firstly, essay shows some stylized facts on U.S. labor market by using raw data and a structural VAR model. Then, the study tests the performance of the model utilized in Chapter 3. The structural VAR models shows that there is a positive correlation between productivity and unemployment and negative correlation between productivity and labor market tightness conditional to technology shock. In addition, I show that the model with on-the-job search component adds more amplification to the standard New Keynesian model with labor market frictions and it is capable of generating both the magnitude and the sign of the fluctuations of labor market variables to productivity shocks.Item Open Access Essays on macroeconomics(Bilkent University, 2018-05) Karasoy Can, Hatice GökçeThis dissertation consists of four essays on macroeconomics with a special emphasis on monetary economics and corporate finance. It presents empirical evidence for the floating rate channel in monetary policy transmission, highlighting the role of debt maturity when measuring cash flow exposure and its association with future path of policy. It then builds a theoretical model with New Keynesian properties in which endogenous borrowing constraints are source of amplification of fundamental shocks. The two blocks of the thesis, both empirical and theoretical essays, uncover the floating rate channel of monetary policy, with a comprehensive understanding and interpretation of corporate debt maturity, nature of repayment structure and forward guidance. The first essay investigates firm level stock price changes around monetary policy announcements in an event study framework, and finds that firms that have issued more floating rate debt see their stock prices affected more. Importantly, it shows that debt maturity is a crucial component of cash flow exposure. The firms with floating rate liabilities at longer maturities experience steeper fall in their stock prices. In addition to this, it provides further evidence regarding the floating rate channel by demonstrating that for the firms which hedge themselves against interest rate risk, the effect of the policy shock is mitigated. This indicates financial market sophistication, which is further explored in the form of statistical tests. Further, it is the path, or forward guidance component of monetary policy shock that triggers this channel since this is the aspect of the policy that shapes expectations about future short rates hence future floating rate debt payments. The results show that, in the zero lower bound period the floating rate channel continued to be effective because of forward guidance surprises. It is shown that this effect is not a result of rule of thumb behavior, and that the marginal stock market participant actually studies and correctly interprets the liability side of firm balance sheets. The tests of financial market sophistication, which are novel, contribute to the empirics of market rationality. Furthermore, the floating rate exposure at the time of monetary policy surprises predicts future investment and profitability, verifying the pricing decision and also providing evidence of another channel for monetary policy, due to financial effects. In short, this essay provides a detailed analysis of neo-classical monetary policy transmission involving firm balance sheets and provides a small glimpse of what lies behind Bernanke and Gertler’s (1995) “black box”. The second essay provides additional robustness checks and considers alternative regression model specifications to those in the first essay. This essay discusses the existence of floating rate channel for samples of different firm size classes, and for samples including or excluding specific sub-sectors. It shows that for small-sized firms, the channel is not evident, presumably resulting from the fact that their access to floating rate debt market is limited. This warrants further analysis, which will be taken up in the future. It confirms the cash flow effect and the protective power of hedging increases when the analysis excludes both financials and utilities sectors. Furthermore, it analyzes various specifications with additional control variables, time fixed effects, and provides further evidence for the zero lower bound period. The third essay builds a simple model in which both short term and long term debt co-exist. The essay is motivated by empirical papers which show that firms match their debt maturity structure and asset maturity. The model assumes that the sector which has long-lived capital is financed by long term debt, and the sector which has short-lived capital is financed by short term debt. The simple model provides an environment to discuss the sector-specific effects of the aggregate shocks and macro-prudential policies. In the second part of the essay, the simple real model is extended to a New Keynesian dynamic stochastic general equilibrium model which embeds nominal frictions due to price stickiness, which creates a role for monetary policy. The extended model has various policy implications. The impulse response functions to a similar monetary policy shock show that floating rate debt might be more disruptive for consumption. Moreover monetary policy is less effective in the floating rate case. These are in accordance with the findings of floating rate debt literature. Moreover it shows that lengthening the maturity of floating rate debt puts long term debt financed entrepreneurs into a more vulnerable position. This supports empirical findings in the first and second essay. The specific type of corporate debt that is used to finance investment, which eventually turns into production, plays a significant role in determining future cash flows, and that in turn is quite important for understanding monetary policy transmission. The fourth essay, which is the final essay of the thesis, is included to fulfill the publication requirement. It assesses empirically whether consumer confidence indices contain information about future private consumption growth in Turkey. To this end, empirical models for quarterly total, durable and nondurable consumption growth with and without sentiment indicators are presented, and in-sample forecasts and one-step-ahead out-of-sample forecasts from recursive OLS estimates are evaluated. It is demonstrated that consumer confidence indices are informative about consumption, however once other macro economic variables (e.g., exchange rate, labor income, real interest rate etc.) are included, gains from them in out-of-sample forecasts decrease significantly. Moreover there is no clear evidence for either precautionary savings motive or permanent income hypothesis.Item Open Access Essays on macroeconomics(Bilkent University, 2018-09) Taş, Mustafa AnılThis 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.Item Open Access Essays on macroeconomics(Bilkent University, 2017-09) Özcan, GülserimThis dissertation consists of four essays on macroeconomics with a special focus on monetary economics, and shows the rationale behind non-optimality of expectation formation both empirically and theoretically. The first essay is empirical, and studies the role of inflation experience in the formation of inflation expectations in the euro area by investigating whether and to what extent inflation expectations of different forecasters are affected by the inflation they observe in the area they are residing in. We exploit the fact that many forecasters provide forecasts of the euro area inflation and these forecasters are in different firms, located in different countries. Hence there is a spatial dimension in the inflation experience of the forecasters. In particular, we first focus on the expectations of professional forecasters from different countries and ask whether their forecast errors are correlated with the observed inflation in the forecaster’s country at the time the expectation was formed. We find that current home inflation unduly affects expectations of next year’s euro area inflation, which may be because forecasters think euro area is more like their own country than it actually is (spatial) and/or think inflation is more strongly auto correlated everywhere than it actually is (temporal). We devise tests to decompose this effect into i) spatial error and ii) temporal error. We provide evidence showing that the source of this error is exclusively the temporal dimension. Forecasters perceive the world to be more serially correlated than it actually is for their home country, and for other countries as well which results in more pronounced and forecastable forecast errors. They understand the spatial dimension of inflation correctly. The second essay analyzes whether and how model uncertainty affects the amplification mechanism of the New Keynesian models. A first finding on a benchmark New Keynesian model with staggered price setting is that a robust optimal commitment policy necessitates more aggressive policy under a demand shock. Further, bringing additional persistence into the model deteriorates the effectiveness of monetary policy. Hence, allowing for either habit formation or partial indexation of prices to lagged inflation rate requires a stronger response for the policy to a demand shock. Together with the specification doubts, in order to reassure the private sector and signal that it will stabilize the fluctuations in the output gap, the policymaker reacts more aggressively as persistence rises. Although inflation persistence does not change the impact of model uncertainty, habit formation in consumption eliminates -even reverses- the impact of uncertainty on the policy reaction to a supply shock. The policymaker always attributes less importance to nominal interest rate inertia when there are concerns about model uncertainty. The third essay analyzes how the optimal behavior of a central bank changes if the central bank has a concern for robustness regarding model uncertainty when there is a possibility of a regime switch in the economy in which the transmission mechanism of monetary policy weakens. The aim is to stress the expectational effects arising from the regime-switching structure. The framework allows identifying the contribution of time-varying doubts about model misspesification on top of the risk of a future weakening of the policy transmission. The result implies a more active policy stance to reduce the possibility to experience a deterioration of monetary transmission mechanism even in normal times. The fourth essay takes a different turn and measures the monetary policy transmission mechanism in Turkey. Quantifying the impact of policy decisions on financial markets is complicated because of the simultaneous response of policy actions to the asset prices, and possible omitted variables that both variables respond to. This chapter applies a heteroscedasticity-based generalized method of moments (GMM) technique for financial markets in Turkey to overcome these problems. This approach is based on the heteroscedasticity of the policy surprises on monetary policy committee meeting dates to identify the financial market reaction to monetary policy. The findings are used as a cross-check for the widely-used identification technique, namely the OLSbased event study. The results suggest that event study estimates are biased for some asset returns.Item Open Access Essays on network theory and applications(Bilkent University, 2019-01) ikizler, HüseyinThis thesis consists of three essays centering on network theory. In the first essay, we use a network model to show how homophily, conjoined with conformity, may shape political divisions along ethnic lines in multi-ethnic societies. We find that the decisive factor is not simply the degree of homophily but the presence of monotone agents, who are only connected with their own types. When there is no monotone agent, even if the level of homophily is unbounded, ethnic divisions can be avoided. The presence of a few monotone agents necessarily divides a sparsely integrated society along ethnic lines. The second essay examines both theoretically and empirically (strong) Nash equilibrium of the free labor mobility network formation game. First, we design a network formation game in which each country's action is a choice of a mobility network between a subset of countries. The utility of each country is determined by a country specific threshold level of absorption ratio and net labor ows. We theoretically characterize all stable and optimal mobility networks under speci fic assumptions. In our empirical analysis, we focus on EU and EFTA member countries. We observe that some specific countries incur the maximum loss in the grand mobility network according to our model. These countries turnout to be the ones in which reintroduction of quotas on migration is approved via referendum. In the third essay, we examine a normal form game of network formation due to Myerson (1991). All players simultaneously announce the links they wish to form. A link is created if and only if there is mutual consent for its formation. The empty network is always a Nash equilibrium of this game. We define a refinement of Nash equilibria that we call trial perfect. We show that the set of networks which can be supported by a pure strategy trial perfect equilibrium coincides with the set of pairwise-Nash equilibrium networks, for games with link-responsive payoff functions.Item Open Access Essays on nonlinear dynamics in optimal growth models(Bilkent University, 2014) Yüksel, Mustafa KeremEconomic models with time delay have long been considered in economic theory. It is considered that delay forces the economic system into persistent cycles which can be interpreted as intrinsic crises of the capitalist economy. The e§ect of delay on economic dynamics is analyzed by Hopf bifurcation according to the recent developments in economics and mathematics. Hopf bifurcation depends on the existence of a pair of pure imaginary eigenvalues of the Jacobian matrix evaluated at the steady state. However, recent studies are inconsistent in a determinate way to decide whether the optimal growth model with investment lags admits persistent cycles or not. In the second chapter of this thesis, the author tries to sharpen the analysis of one sector optimal growth model with one control and one state variables and time delay. We Örstly give a brief outline of the mathematical history and ëknow-howíof delays in economic models, as well as its interpretation, and then, we further the analysis set of the model of Asea and Zak (1999) and try to introduce of a new technique for the exposition of the eigenvalues of the characteristic equation of these type of models in a generalized framework. In the third chapter we introduce a new technique (see Louisell, 2001) to the study of economic models with delays and incorporate this technique to evaluate the cycleinducing e§ects of capital dependent population growth in economic models with time delay. We employ the Solow-Kalecki framework and show that the presence of capital dependent population growth induces cycles. Other than the introduction of a new technique into the area of economics, one particular contribution of this chapter is that the results clearly shows that delay is not su¢ cient in inducing cycles even in the most simple economic models. In the forth chapter, we show that Hopf bifurcation may emerge in an overlapping generations resource economy through a feedback mechanism between population and resource availability. In overlapping generations resource economy models, the cycle inducing factor is mainly the nonlinearity of the regeneration of the resources. On the contrary, we assume linear regeneration and yet, endogenize the population growth rate. We show that the interaction between instantenous population growth and regeneration rate triggers persistent cycles in the economy. In the Öfth chapter, we employ a continuous delay structure in the process of recruitment in the population growth in an optimal growth model and hence obtain cyclic solutions. We exploit Erlangian process in the population growth mechanism. As far as we know, the incorporation of Erlangian process in optimal growth models is handled in this chapter for the Örst time in economic literature. Through this mechanism, not only the population is considered as a function of per capita capital, or in other words, population growth is endogenized, but also the current level of population growth is linked with those of older generations. We Önd out that the interaction between the e§ect of older generationsífertility choices and the accumulation of capital induces cyclic behaviour in the economy. The sixth and the last chapter concludes with future research agenda. Overall, the thesis considers the e§ects of delay and endogenized population on the economies of interest (Solow, overlapping generations, optimal growth model) economically and tries to introduce the existing methods and develop new ones to investigate the e§ects of delay and endogenized population on the eigenvalues of the Jacobians that the drive the economies of interest at their steady states.
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