Papers by Mehmet Yörükoğlu
Journal of Monetary Economics, Dec 1, 1997
A prototypical vintage capital model of economic growth is developed, where the decision to repla... more A prototypical vintage capital model of economic growth is developed, where the decision to replace old technologies with new ones is modeled explicitly. Technological change is investment specific. Depreciation in this environment is an economic, not a physical, concept. The vintage capital economy's balanced-growth paths and transitional dynamics are analyzed. The transitional dynamics are markedly different from the standard neoclassical growth model.
Papers in this volume were prepared for a meeting of senior officials from central banks held at ... more Papers in this volume were prepared for a meeting of senior officials from central banks held at the Bank for International Settlements on 16-17 February 2012. The views expressed are those of the authors and do not necessarily reflect the views of the BIS or the central banks represented at the meeting. Individual papers (or excerpts thereof) may be reproduced or translated with the authorisation of the authors concerned. This publication is available on the BIS website (www.bis.org).
PSN: Other Fiscal Policy (Topic), 2013
The interaction between fiscal and monetary policies evolves over time and differs from country t... more The interaction between fiscal and monetary policies evolves over time and differs from country to country. In this study, we first present the case of Turkey. During the 1990s, the country’s fiscal deficits and public debt ballooned. Monetary policy was severely constrained by the resulting high-risk outlook for the economy, combined with the underdevelopment of domestic financial markets. In the 2000s, however, a significant fiscal consolidation has allowed fiscal policymakers to move from a procyclical to a countercyclical stance, increasing the effectiveness of monetary policy. In the second part of the paper, we discuss the implications of globalisation for the interaction between fiscal and monetary policy. One possible channel comes from the interplay of the inflation rates, policy rates and real exchange rates between emerging and advanced countries. Structural factors such as differences in consumer baskets and quality measurement error, or convergence processes might lead ...
ERN: Price Level; Inflation; Deflation (Topic), 2016
The low level of global interest rates and the high liquidity resulting from the quantitative eas... more The low level of global interest rates and the high liquidity resulting from the quantitative easing policies adopted by advanced countries in the wake of the global financial crisis of 2007–09 bolstered capital flows to emerging market economies. However, the uncertainties relating to the future path of global monetary policies and the prospects for economic recovery led to high volatility in risk appetite, capital flows and exchange rates. In the process, emerging market economies with higher current account deficits faced larger currency depreciations and, consequently, higher cumulative increases in consumer prices. High current account deficits combined with strong inflationary pressures created a twin problem of financial and price stability. Exchange rate pass-through turned out to be an important parameter of this twin problem with a high degree of pass-through amplifying the relationship between current account deficits and inflationary pressures. Moreover, the twin problem...
The interaction between fiscal and monetary policies evolves over time and differs from country t... more The interaction between fiscal and monetary policies evolves over time and differs from country to country. In this study, we first present the case of Turkey. During the 1990s, the country's fiscal deficits and public debt ballooned. Monetary policy was severely constrained by the resulting high-risk outlook for the economy, combined with the underdevelopment of domestic financial markets. In the 2000s, however, a significant fiscal consolidation has allowed fiscal policymakers to move from a procyclical to a countercyclical stance, increasing the effectiveness of monetary policy. In the second part of the paper, we discuss the implications of globalisation for the interaction between fiscal and monetary policy. One possible channel comes from the interplay of the inflation rates, policy rates and real exchange rates between emerging and advanced countries. Structural factors such as differences in consumer baskets and quality measurement error, or convergence processes might lead to higher inflation rates and currency appreciation in emerging countries. It might be desirable to smooth this appreciation and contain excessive exchange rate volatility. In this regard, monetary policy in emerging countries might be constrained by inflation differentials and the low level of policy rates in developed countries. In this case, a possible policy option would be to use fiscal consolidation, a strategy that has been observed in emerging countries over the past decade.
Bis Papers Chapters, 2008
Recently, Central Bank of Turkey designed new policy instruments in order to reduce the adverse i... more Recently, Central Bank of Turkey designed new policy instruments in order to reduce the adverse impact of volatile capital flows on macroeconomic and financial stability. This note is aims to introduce one of the new instruments: “Reserve Option Mechanism” (ROM). We describe the transmission channel of the ROM and compare it with alternative instruments. Our analysis concludes that ROM has the potential to be a useful policy tool for macroeconomic and financial stability.
The last three decades have been marked by financial market globalisation and a higher degree of ... more The last three decades have been marked by financial market globalisation and a higher degree of integration of emerging markets into the world economy. One distinct feature of this integration has been a sharp increase in portfolio flows between advanced and emerging market countries. Since the global financial crisis of 2008-09, these flows have become very sensitive to the monetary policy stance, interest rates and central bank balance sheets of advanced economies. Coupled with prevailing policy uncertainties, this has made global portfolio flows highly volatile, and accordingly has given rise to serious challenges for emerging market countries. To contain the potentially undesirable effects of these flows on their domestic real and financial cycles, emerging market countries have implemented a battery of macroprudential policies. Turkey has been proactive in devising an augmented policy framework to limit such undesirable effects, using policy tools such as reserve requirements, the Reserve Option Mechanism and the interest rate corridor. This note uses a crosscountry data set covering 2005-12, and shows that the policy framework in Turkey has been effective in decreasing the sensitivity of portfolio flows to global risk factors.
An optimal dynamic fiscal loss model for Turkey is presented in this note. The model is used as a... more An optimal dynamic fiscal loss model for Turkey is presented in this note. The model is used as a benchmark to gauge the success of potential simple fiscal rules. Optimal linear and non-linear rules are shown to perform well.
SSRN Electronic Journal, 2008
Central Bank Review, 2013
Recently, Central Bank of the Republic of Turkey designed new policy instruments in order to redu... more Recently, Central Bank of the Republic of Turkey designed new policy instruments in order to reduce the adverse impact of volatile capital flows on macroeconomic and financial stability. This paper aims to introduce one of the new instruments: "Reserve Options Mechanism" (ROM). We describe the transmission channel of the ROM and compare it with alternative instruments. Our analysis concludes that ROM has the potential to be a useful policy tool for macroeconomic and financial stability.
Heightened volatility in cross-border capital flows has increased exchange rate volatility across... more Heightened volatility in cross-border capital flows has increased exchange rate volatility across emerging markets as well as in advanced economies, setting the stage for more active management of currencies. Traditionally, foreign exchange rate intervention has been the primary tool to address these types of challenges. However, given the limitations of foreign exchange rate intervention, it may be well worthwhile to explore alternative mechanisms for dealing with capital flow volatility. This paper explains how the new policy framework adopted by the Central Bank of the Republic of Turkey (CBRT) in the past two years has eased the need to conduct FX interventions. We first describe the rationale for the new policy framework, which is an augmented version of inflation targeting, with more emphasis on macro financial risks. Next, we explain the new instruments developed by the CBRT and their contribution to coping with capital flow volatility. In particular, we focus on the Reserve Option Mechanism, which is designed as a shock absorber for volatile capital flows, and thus reduces the need for FX intervention. We argue that although Turkey has not been engaged in direct FX interventions since the beginning of 2012, the volatility of the Turkish lira has been remarkably low in comparison with the currencies of peer economies.
The inflation target-setting in the Philippines is based on the existing framework for coordinati... more The inflation target-setting in the Philippines is based on the existing framework for coordination between government economic agencies under the Development Budget Coordinating Committee (DBCC).3 The national government, through the DBCC, sets the inflation target based on the consumer price index (CPI) two years ahead in consultation with the Bangko Sentral ng Pilipinas (BSP). The BSP has full powers over
American Economic Review, 2002
The Review of Economic Studies, 2005
Electricity was born at the dawn of the last century. Households were inundated with a flood of n... more Electricity was born at the dawn of the last century. Households were inundated with a flood of new consumer durable goods. What was the impact of this consumer durable goods revolution? It is argued here that the consumer goods revolution liberated women from the home. To analyze this hypothesis, a Beckerian model of household production is developed. Households must decide whether to adopt the new technologies or not, and whether a married woman should work. Can such a model explain the rise in married female labor-force participation that occurred in the last century? Yes.
American Economic Review, 2012
This paper develops a model of industry dynamics where firms compete to acquire customers over ti... more This paper develops a model of industry dynamics where firms compete to acquire customers over time by disseminating information about themselves in the presence of random shocks to their efficiency. The properties of the model's stationary equilibrium are related to empirical regularities on firm and industry dynamics. As an application of the model, the effects of a decline in the cost of information dissemination on firm and industry dynamics are explored. (JEL D11, D83, L11, L81, M37)
Review of Economic Dynamics, 1998
A vintage capital model where the firm makes decisions about whether to replace or upgrade its ol... more A vintage capital model where the firm makes decisions about whether to replace or upgrade its old capital stock with new capital is developed in this paper. The model is used to study how technological characteristics of capital affect investment behavior. In particular, it is asked how the rate of technological advance, the compatibility between capital stocks of different vintages, and the extent of learning-by-doing affect investment behavior. The model sheds light on the ''information technology productivity paradox.'' The results suggest that the paradox may just be an artifact of the estimation procedures used, which ignore the vintage features of capital. Finally, the key implications of the model are tested using firm-level data. The data support the implications of the model that informa-Ž. tion technology IT capital is associated with a strong learning-by-doing effect and that IT capital investment is lumpier than other kinds of capital investment.
Journal of the European Economic Association, 2003
We study the behavior of imitation and innovation in a dynamic general equilibrium model that cap... more We study the behavior of imitation and innovation in a dynamic general equilibrium model that captures the salient features of an information age. We study a world where innovations can be made but at a cost that re ects the type of goods. After innovation takes place, imitation is possible but again at some cost which re ects the nature of the good. We show that the behavior of innovation and imitation are very different for high information content goods and low information content goods and this has important implications for the structure and evolution of industry.
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Papers by Mehmet Yörükoğlu