Two essays on macroeconomics

The empirical evidence suggests that openness decreases the effect of monetary policy on output; however the effect on prices is not statistically significant. In the first chapter of this research these predictions are tested over the open economy of Turkey for quarterly data from 1987:1 to 2001:1. This chapter assesses how the openness affects the effectiveness of monetary policy on output and prices. The purpose of the second chapter is to assess if expansionary and contractionary government spending shocks have an asymmetric effect for Turkish economy. There might be asymmetry for the effect of fiscal policy on economic outcome due to stickiness of prices, perception of changes (permanent versus transitory) and nearness to full employment. This chapter assesses this asymmetry for Turkey by using quarterly data from 1987:I to 2001:I. The empirical evidence reported here reveals that private consumption and investment decrease in the face of expansionary government spending shocks; however, they either do not change or decrease very little under contractionary government spending shocks.