Erdinc Telatar

Re-examine the long-run purchasing power parity hypothesis for a high inflation country: the case of Turkey 1980-93

This paper examines the hypothesis of long-run purchasing Power Parity (PPP) using cointegration techniques for Turkey that experiences high inflation and structural changes coupled with high growth rates simultaneously. The results do not support any long-run bilateral exchange rate-price relationship between Turkey and each of the following countries considered to be the major trading partners of Turkey: France, Germany, the UK, and the USA.

The relationship between inflation and different sources of inflation uncertainty in Turkey

The relationship between inflation and different sources of inflation uncertainty is investigated in Turkey during the period of 1995:3–2000:12. A time-varying parameter model of inflation with heteroscedastic disturbances is used to generate different sources of inflation uncertainty and then Granger methods are employed to test for causality between inflation and different sources of inflation uncertainty. The findings show that there is a causative influence of inflation on its uncertainty arising due to time-varying parameters of the inflation model. No evidence is found on the correlation between inflation and inflation uncertainty arising due to heteroscedasticity in the disturbance terms.

Purchasing Power Parity in transition economies: evidence from the Commonwealth of Independent States

This article tests the validity of Purchasing Power Parity (PPP) for Commonwealth of Independent States (CIS) countries. For this purpose we test whether the real exchange rate series of 10 CIS countries vis-à-vis the US dollar follow a stationary process. Considering the fact that the CIS countries have undergone major structural changes during the transition period, in addition to conventional unit root tests, we employ recently developed unit root tests that allow for structural breaks and non-linearities. When possible structural changes and non-linearities are not taken into account, the null hypothesis of unit root is rejected only in two out of 10 series. However, allowing for structural breaks and/or non-linearities in the data generating process results in more rejection of the null hypothesis of unit root. All in all, our results provide evidence in favour of the PPP hypothesis in these transition countries.

A new approach on testing the behaviour of the governments towards sustainability of fiscal policy in a small-open and politically instable economy

This study extends Bohns (1998) model to the context of a small-open economy suffering from political and economic instabilities. A Markov-switching model is developed by incorporating a Bayesian Gibbs sampling simulation. The model is estimated for Turkish economy over the period of 1980–2001 to analyse the relationship between primary surpluses and government total liabilities. The main result of the study is that the relationship might be unstable due to the changes in intentions of the governments towards sustainability of fiscal policy.

The asymmetric effects of monetary shocks: the case of Turkey

This paper examines whether there is an asymmetry in the effects of positive versus negative and small versus big money supply shocks, and whether the effects of the shocks on output and prices vary over the business cycles in the case of Turkey. Negative shocks to money are found to have greater output and smaller price effects compared to the effects of positive shocks, irrespective of the initial state of the economy. It is also found that monetary shocks of different size affect output growth and inflation rates proportionately. These findings can be interpreted as evidence for the view that the short run aggragate supply curve is convex in such a country like Turkey.

Political instability, political freedom and inflation

Using a dynamic panel data approach, we estimate the impact of the political and institutional factors on inflation. Estimation results show that a lower degree of political instability generates lower inflation only for developed and low-inflation countries. However, when political freedom is taken into account, political instability appears to be influential on inflation also for developing countries and turns out to be significant only for high-inflation countries. Such findings emphasize the inflation-reducing effects of political stability depending on democratic political structure.

Re-examining purchasing power parity for selected emerging markets and African countries

The validity of Purchasing Power Parity (PPP) is re-examined using data for some emerging market economies and African countries, extending recent works of Doğanlar et al. (2009) and Chang et al. (2010), respectively. For this purpose, we apply new unit root tests that allow for nonlinearities and structural change in the data-generating process. The results of this study suggest that although linear unit root test provides evidence in favour of PPP only in a few cases, the new nonlinear unit root tests suggest that the PPP proposition holds in majority of the sample countries.

The Electricity Market, Day-Ahead Market and Futures Market

This chapter firstly provides an overview of the day-ahead and futures electricity markets of APX-ENDEX that is one of Europe’s most experienced energy exchanges, operating spot and futures markets for electricity and natural gas in the Netherlands, the United Kingdom and Belgium. An empirical analysis on the relationship between spot and futures electricity market of APX-ENDEX is then covered. We handle the most liquid year, which is 2008, of traded electricity futures contracts and we find that the market is in normal backwardation. Our regression analysis extents the Fama (J Monet Econ 1984;14:319–338) regressions and rejects the efficiency hypothesis. Our results indicate that the futures prices are not unbiased predictors of the future spot prices. Remarkably, the difference between the spot and futures prices is associated with the risk premium and the change in spot prices, supports the arbitrage and speculation opportunities in the market.

Time Series Behaviour of the Real Interest Rates in Transition Economies

Stationarity properties of real interest rates are examined for 21 transition economies. Owing to transaction costs and other frictions, it is quite plausible that we are dealing with potential non-linearities in the real interest rate. Therefore we examine stationarity of the real interest rate allowing for non-linearities and asymmetric adjustment with smooth structural change in the data generating process. Our findings suggest that taking account of non-linearities in the data generating process results in a rejection of the unit root null hypothesis for some countries which seem to be non-stationary according to conventional unit root tests. This finding points to the importance of allowing for both structural breaks and asymmetric adjustment in the real interest rate series of transition countries.

CURRENT ACCOUNT AND EXCHANGE RATE DYNAMICS UNDER AN INFLATION TARGETING REGIME

Maintaining price stability has been assigned as the primary objective of monetary policy and the inflation targeting regime has been adopted by the new legal arrangement made in 2001 in Turkey. However, the current account deficit has become a serious problem along with the efforts to decrease inflation during 2000s. In this study, after explaining the relationship between the goals and instruments of monetary policy in an open economy where an inflation targeting regime is implemented, we estimate the effects of monetary policy shocks on the current account and the real exchange rate in the Turkish economy. Our results from the structural VAR estimation show that a positive nominal shock has an favorable effect on the current account in the short run which disappeared in the long run. Our findings are consistent with the predictions of the redux model on which the New Open Economy Macroeconomy literature has been developed.