A. Erinc Yeldan

Dynamics of Macroeconomic Adjustment in a Globalized Developing Economy: Growth, Accumulation and Distribution, Turkey 1969-1998

ABSTRACT Our purpose in this paper is to establish stylized facts of the Turkish macroeconomic adjustments using data from 1969 to 1999. We adopt a traditional a priori definition of business cycles as cyclical co-movements of economic variables such as public, private and construction investments, trade balance, labour productivity, wages and fiscal accounts with the cyclical component of real GDP. We also incorporate in our analysis an investigation of the cyclical components of exchange rates, interest rates, price inflation, and the monetary aggregates. Our quantitative findings reveal a robust and significant positive relationship between public and private investments and real GDP growth, suggesting the presence of “crowding in” effects of public investment. Trend growth of manufacturing wages and average labour productivity are loosely associated over the whole period, and the rapid gains in productivity in the post-1980 reform era are not observed to be materialized as gains in remunerations of wage labour. We also find a significant negative correlation of manufacturing wages with merchandise exports and the exchange rate; and document further evidence of the strong negative correlation between variations in consumer prices and production.

Financial liberalization and fiscal repression in Turkey: Policy analysis in a CGE model with financial markets

Abstract The effects of recent Turkish financial liberalization reforms on the real economy are investigated with the aid of a computable general equilibrium model that incorporates financial markets. The model is used for conducting counterfactual and comparative static simulation experiments to analyze three sets of issues: (1) the real side effects of the governments mode of financing its fiscal deficit through debt instruments or monetization; (2) the effects of deregulation of the public debt instrument issuing rules on the financial markets; and (3) the domestic implications of the continued external debt servicing and the foreign exchange rate devaluations.

Disinflation, Fiscal Sustainability, and Labor Market Adjustment in Turkey

This paper analyzes the effects of monetary policy and fiscal adjustment on output and unemployment in Turkey. The model on which the analysis is based accounts for rural-urban migration, a large urban informal sector, flexible exchange rates, a dollarized banking system, and interactions between default risk on government liabilities, credibility, and inflation expectations. The short- and long-run effects of a rise in official interest rates and tax increases are analyzed. The results highlight the importance of accounting for the link between default risk and credibility in understanding the real and financial effects of macroeconomic adjustment.

On Structural Sources of the 1994 Turkish Crisis: a CGE modelling analysis

This paper investigates the impact of the Turkish public sector imbalances on the evolution of the economic crisis during 1990-93. A computable general equilibrium model is used. The theoretical basis of the model rests upon the structuralist/Keynesian macro foundations. Its distinguishing features entail accommodation of oligopolistic mark-up pricing rules in the industrial sectors, and endogenous solution of capacity utilisation and unemployment levels through Keynesian mechanisms of effective final demand. The results of the model underscore the importance of intra-class relations of income distribution and conflict in the evolution of price movements in the Turkish economy. It is further argued that the sources of the capitalist in the administrative interventions of the state towards protection of the capitalist and rural incomes, which would otherwise be squeezed out in favour of wage-labour in the early 1990s.

The Minimal Conditions for a Financial Crisis: A Multiregional Intertemporal CGE Model of the Asian Crisis

The globalization of world capitalism constrains the ability of the developmental state to pursue an independent industrialization and foreign trade strategy. We use an intertemporal, multiregion CGE model, to study the fundamental reasons for a financial crisis. We find that we can create a realistic crisis in the Asia region when capital markets are open and there is an unexpected rise in the risk premium of the Asia region. When capital markets are closed and the state retains all its policy instruments, the Asia region not only avoids a crisis but increases its rate of growth.

Turkish Economy in the 1990s: An Assessment of Fiscal Policies, Labor Markets and Foreign Trade

Turkey entered the 1990s under conditions of a truly “open economy”–a macroeconomic environment where its capital account was completely liberalized and the process of financial de-regulation was completed. In this setting, many of the instruments of macro and fiscal control have changed in nature, as the constraints of macro equilibrium have undergone major structural change. In the early 1990s, the domestic economy witnessed a massive inflow of (mostly short-term) foreign capital. Furthermore, the so-called foreign exchange gap which had constrained the growth potential of Turkey for more than three decades seemed to have been alleviated. The ready availability of foreign exchange enabled the Turkish Lira to appreciate against the major currencies in real terms and led to a rapid expansion of import demand. Moreover, it made possible the financing of both the rapidly growing fiscal deficit of the public sector and the sudden rise of wage costs in the labor market.

Structural adjustment and trade in Turkey: Investigating the alternatives "beyond export-led growth"

Abstract The article searches for a viable alternative for Turkeys economy to resolve its current confrontation with the dilemma of stabilization and growth. With the aid of a dynamic, computable, general equilibrium model, it is argued that an integrated, industrialization strategy that combines a domestic-demand-based, wage-goods-oriented public investment program with a selective export-promotion scheme promises to be the most appropriate one serving Turkeys long-term industrialization interests. The model results further emphasize the pressing need for the revitalization of the domestic demand and the importance of the agricultural productivity growth in promoting Turkeys overall objectives of industrialization, income equity, and foreign trade over the Fifth and Sixth Plan periods.

Fiscal Debt Management, Accumulation and Transitional Dynamics in a CGE Model for Turkey

ABSTRACT We use a dynamic general equilibrium model based on intertemporally optimizing agents to study alternative debt management policies for the Turkish economy. The model is based on the neoclassical growth theory in its adjustment to steady state dynamics, and on Walrasian general equilibrium theory of a small open economy in attaining equilibrium in its commodity and factor markets. Key features of the model are its explicit recognition of the distortionary consequences of excessive borrowing requirements of the public sector through increased domestic interest costs; and endogenous determination of the private work force participation decisions in response to changing tax incidences. The model results suggest that reliance on indirect taxes, as in the current stance of the fiscal authority, has appealing results in terms of attaining fiscal targets, yet it suffers from distortionary consequences and loss of economic welfare.

An Assessment of the Turkish Economy in the AKP Era

This paper studies the performance of the Turkish economy under the reign of the Justice and Development Party (Adalet ve Kalkınma Partisi, AKP). Most of this period coincides with abundant global capital especially in the aftermath of the Great Recession. We argue that AKP’s economy policies were shaped with the goal of attracting foreign capital to the country, creating a debt ridden speculative growth model and turning a blind eye to the mandate of solving the country’s fundamental problems. Within this model, monetary policy has been the leading actor. Although the Central Bank has been operating with a price stability mandate during this period, inflation targeting performance has been poor, creating doubts about the leading motive behind the reaction function. Fiscal policy became a dependent variable, shadowed by the capital chasing monetary policy. As global liquidity started to become more risk averse in the post-tapering era and as accumulated domestic problems of the country became thicker, Turkey’s growth model proved to be unsustainable, intensifying external fragility for the period ahead.

Challenges and Choices in Post-Crisis East-Asia: Simulations of Investment Policy Reform in an Intertemporal, Global Model

The East Asian financial crisis exposed the problems of excessive government intervention in credit allocation and poor supervision of the banking system. We argue that the crisis is an opportunity to reformulate the strategies of growth by way of eliminating politicized intervention on investment. In an intertemporal general equilibrium model, we examine the adjustment processes of the crisis-hit region and the world economies, and investigate the removal of the investment subsidies. Our results suggest that the immediate impact of the crisis on the Asian economies is a contraction of GDP and investment. We also find significant welfare gains in the crisis-hit economies in response to elimination of the subsidies to firms investment.