Omar Benkato

Interdependence and Volatility Spillovers Under Market Liberalization: The Case of Istanbul Stock Exchange

This paper analyzes stock returns and volatility relations between the Istanbul Stock Exchange (ISE) and the global market as represented by stock markets in the US, the UK, Japan and Germany. Results from monthly data and multivariate cointegration tests suggest that the ISE became significantly integrated in the global market only in the period following market liberalization in late 1989. We also find evidence based on GARCH estimations that capital liberalization actually mitigated, rather than intensified, volatility in the ISE. Our results further suggest that the Asian crisis in mid-1997 and the consequent Russian economic meltdown in mid-1998 are partly responsible for the recent excessive volatility in the Turkish market. The results also identify the US and the UK markets as dominate sources of volatility spillovers for the ISE, even in the period following the Asian-Russian crises. Consequently, it appears that the two matured markets of the US and the UK shoulder significant responsibility for the stability and financial health of smaller emerging markets like the ISE.

On currency substitution and money demand instability

Abstract Based on the asset portfolio-balance theory and on modeling in the context of cointegrated systems, this paper develops a broad money demand function for Japan, giving a special attention to the role of international currency substitution. The empirical results from quarterly time series suggest that a meaningful and structurally stable broad money demand equation can be estimated for Japan but only if currency substitution is taken into account. Therefore, Japanese monetary authorities should make allowance for the important effect of currency substitution on domestic money holdings when formulating policies. Moreover, the results further imply that Japan and the U.S. in particular may need to coordinate their monetary actions as a “bloc” rather than pursue independent policies.

Cost/Benefit Analysis of Establishing an Offshore Banking Center: The Case of Anchorage

The unabated fluctuation of oil prices in the world markets and their drastic decline since 1985 has prompted the state of Alaska, and other states whose economies rely primarily on oil, to look more seriously into the possibilities of diversifying the sources of their income. One possibility is to consider the establishment of an international financial center (IFC) in Anchorage, the largest city in Alaska. The proposed center would function as an interbank market, comprised of foreign and local financial institutions, in which short-term, medium-term and long-term international lending and borrowing—for purposes of investment, financing, hedging, and speculation—denominated in Eurocurrencies are consummated. Lenders and borrowers would include multinational corporations, banks, and governments.