Bilin Neyapti

Central Bank Reform, Liberalization and Inflation in Transition Economies - An International Perspective

This Paper develops extensive new indices of legal independence (Central Bank Independence, or CBI) for new central banks in 26 former socialist economies (FSEs). The indices reveal that central bank reform in the FSE during the 1990s has been quite ambitious. In spite of large price shocks, reformers in those countries have chosen to create central banks with levels of legal independence that are substantially higher, on average, than those of developed economies during the 1980s. The evidence in the Paper shows that CBI is unrelated to inflation during the early stages of liberalization. But with sufficiently high and sustained levels of liberalization, and controlling for other variables, legal CBI and inflation are significantly and negatively related. These findings are consistent with the view that even high CBI cannot contain the initial powerful inflationary impact of removing price controls. But once the process of liberalization has gathered sufficient momentum legal independence becomes effective in reducing inflation. The Paper also presents evidence on factors that affect the choice of CBI and it examines the relation between inflation and CBI in a broader sample.

Has European Customs Union Agreement really affected Turkey's trade?

The numerous discussions regarding the advantages and disadvantages of Turkeys becoming a member of the Customs Union has been inconclusive. The empirical analysis that mostly focus on the changes in the volume of trade without much regard to the conjectural changes have also been insufficient. This study attempts to shed light on this issue in a formal analysis of Turkeys international trade by empirically accounting for the changes before and after the Customs Union Agreement (CUA). In doing so, we explicitly account for the concurrent changes in the macroeconomic environment that may have affected Turkeys trade with the rest of the world. Our empirical findings indicate that CUA has not only positively impacted on Turkeys trade, but also led to changes in the behaviour of both exports and imports with regards to their responsiveness to underlying variables.

Determinants of Workers' Remittances Turkish Evidence from High-Frequency Data

The potential importance of workers remittances (WR) as a relatively stable source of foreign exchange has been growing across the world. We present time-series evidence on the determinants of WR in a large developing country, Turkey. Using yearly data, Aydas et al. (2005) show that WR flows to Turkey are significantly influenced by the growth rate of the home gross domestic product (GDP); the level of GDP in both home and host countries; interest rate differentials between home and host countries; the black market exchange rate; inflation; and political stability. This study utilizes higher-frequency data to further investigate the issue from both long-term and short-term perspectives. The new evidence supports the earlier findings regarding the long-run investment motive, but it also shows that consumption smoothing is an effective short-run motive for sending remittances to Turkey.

Central bank independence and economic performance in eastern Europe

Abstract Following the breakdown of central planning by the early 1990s, transition economies faced varying measures of the need for economic restructuring and stabilisation. This paper examines both the trends in economic performance in eight eastern European countries and the degree of central bank independence (CBI) granted after reforms. The evidence of the paper indicates that both the measures of CBI and the measures of financial market development (FMD) show significant association with macroeconomic variables. Also, the sample exhibits positive association between CBI and measures of FMD.

Macroeconomic Impact of Bank Regulation and Supervision: A Cross-Country Investigation

Bank regulation and supervision (RS) is a formal institutional mechanism that aims to reduce the adverse selection and moral hazard risks in the banking sector. This paper offers an empirical exploration of the relationship between banking-sector performance and RS using data on the legal quality of bank regulation and supervision. The main channels via which RS affects bank performance are considered to be depositor trust, investment mobilization, and borrower discipline. An event study of up to fifty-three countries provides robust evidence that RS has significant positive effects on bank deposits and investment rate and significant negative effects on nonperforming loans.

Does Fiscal Decentralization Promote Fiscal Discipline

ABSTRACT We investigate the efficiency and equity implications of a redistributive rule that takes into account both local tax collection efforts and deviation of local incomes from respective targets under alternative fiscal mechanisms. We show that, if the general budget constraint is binding, the proposed transfer rule leads to higher fiscal discipline under fiscal decentralization (FD) than under centralized redistribution. Although the centralized decision yields better income distribution than FD, FD also improves income distribution unambiguously when equalization across regions is targeted explicitly. When localities act strategically, the private sector’s utility weight enhances the disciplinary effect of decentralization.

Performance of Monetary Institutions: Comparative Evidence

This paper provides new evidence on the relative effectiveness of formal monetary institutions in achieving price stability. The institutions considered are, specifically, central bank independence (CBI), inflation targeting (IT), currency boards (CB) and monetary unions (MU). An empirical investigation is conducted to investigate their relative impacts on the average inflation performance, considering that often countries employ a combination of these institutional mechanisms. The evidence indicates that both IT and CB regimes have been associated with significantly lower rates of inflation during the past two decades, whereas CBI and MU do not appear significant in explaining low inflation rates.

Monetary institutions and inflation performance: cross-country evidence

This paper presents an empirical investigation of the effectiveness of the institutional frameworks of monetary policy in achieving and maintaining price stability. The institutional frameworks considered are central bank independence (CBI), inflation targeting (IT), currency boards (CB) and monetary unions (MU). Against the vast literature that argues for the price stabilizing effects of each of these institutions, the empirical evidence presented here suggests that countries that have adopted the IT and CB regimes have, on average, been associated with lower inflation rates than others during the past decade. This finding is robust to various control variables, while governance appears to be a substitute to formal mechanisms.

The Effects Of Fiscal And Monetary Discipline On Budgetary Outcomes

This paper extends the game-theoretic model of Von Hagen and Harden (1995) that analyzes the impact of fiscal discipline on budgetary outcomes.It analyzes the effects on budgetary outcomes of both fiscal and monetary discipline, which are evaluated with respect to the relevant institutional rules. The model predicts that while both inflation and budget deficits are negatively associated with fiscal discipline, they may be positively associated with monetary discipline, proxied by central bank independence. This result obtains due to optimizing agents who internalize the burden of spending: inflation. Although not conclusive due to data limitations, the empirical findings of the paper support these predictions.

Macroeconomic Institutions and Development

The book incorporates the essential elements of institutional theory and highlights the issues pertaining to the measurement of institutional characteristics and the empirical analyses involving such measurement. It provides the theoretical framework of and empirical evidence on fiscal institutions, covering budgetary rules and procedures as well as fiscal decentralization, and reviews the theoretical framework for monetary institutions such as central bank independence, currency boards, monetary unions and inflation targeting in addition to providing empirical evidence on their effectiveness. The role of bank regulation and supervision is also investigated. This path-breaking and original book will prove a fascinating read for a wide-ranging audience including academics, think tanks, international development agencies and policymakers within the fields of development, economics, heterodox economics and money, banking and finance.