The understanding of central banking has evolved several times in the history. Different economic and political conditions shaped the structure of monetary policy and the stance of central banks. The Central Bank of Republic of Turkey (CBRT) also has experienced several reactionary policy shifts throughout its history. Nowadays, majority of central banks have started to follow financial stability programs after the Global Financial Crisis of 2008-09. The CBRT was one of the followers of financial stability targeting and has started to implement a new monetary policy structure after the Global Financial Crisis. The new monetary policy of the CBRT in which the financial stability was put nearby price stability came up with new challenges. Therefore in this thesis, we elaborate on the challenges of the CBRT and propose policy suggestions for the possible deficiencies of the new structure of the CBRT. We argue that the experiences of the CBRT in the inflation targeting period and the macroeconomic conditions of both during and post crisis period have shaped the new structure of the monetary policy, and the new policy mix of the CBRT may not be successful in all its targets at the same time because of the existence of &ldquo / macroeconomic quadrilemma&rdquo / tradeoffs as well as because of the ineffectiveness of the tool portfolio of the CBRT.

There are many reasons for companies to hold real estate, including for operating business, production, sales, and providing services. Previous researches show that corporate real estate (CRE) is an important part of company assets, and it will affect stock returns and risk of company. The main object of this study is to investigate the impact of changes in CRE on stock returns and risk of company in Taiwan. Moreover, this study analyzes how CRE affect toward different industry during each business cycle period. Then, we provide some suggestions to stockholders and managers. The data set from 1992 through 2011 in Taiwan stock market, the relationship between CRE and stock returns and risk are analyzed using two stage least squares regression model. The empirical results show that, on average, higher CRE appears to be associated with higher abnormal return performance and higher total risk. On the other hand, CRE show negative impact on business operation such as lower adjusted return on assets and higher risk of bankruptcy. Furthermore, CRE factor is associated with higher abnormal return performance and higher firm value when company with small asset size, high P/E ratio or newly establish characters. Results also indicate that the impact of CRE on firm¡¦s stock price and risk depend on industries, business cycle period, and firm characters. CRE show negative impact on Textile, Tourism, and Trading and Consumers' Goods Industry. In Food Industry, higher CRE factor is associated with lower system risk and positive impact on business operation.

WHY SHOULD TURKEY CONTINUE WITH STRONG FISCAL ADJUSTEMENT? LESSONS DERIVED FROM THE PAST AgAR PASLI, Mediha M.S., Department of Economics Supervisor: Associate Prof. Dr. Nadir &Ouml / CAL November 2006, 87 pages Turkey managed to produce a strong fiscal adjustment during the period of 1999-2005 with the annual average of close to 5 percent. Moreover, with the help of this tight fiscal stance, Turkey&rsquo / s public debt has been reduced from the peak of 90.5 percent of GNP in 2001 to 55.8 percent in 2005. Although this is a major achievement both in terms of the size and the speed, the challenge for Turkey is now to continue with fiscal adjustment in order to further reduce its public debt level which still poses a sizeable vulnerability risk for the economy. Therefore, in order to provide an answer to the sustainability question, this thesis first aims to (i) measure the fiscal adjustment in Turkey at the general government level during 1999-2005 period, (ii) analyze sources of fiscal adjustment based on the economic classification, institutional breakdown, and cyclical and structural components. After understanding size and sources of adjustment, the reduction in public debt will be decomposed into its parts including the contribution come from primary surplus. This will shed light on whether Turkey could still rely on those factors for further reduction in public debt in the future.

ABSTRACT INFLATION TARGETING AND FISCAL DOMINANCE: EVIDENCE FROM TURKEY SEL, TUgBA M.Sc., Department of Economics Supervisor: Prof. Dr. Erdal &Ouml / zmen September 2007, 60 pages. This study investigates the significance of fiscal dominance for an inflation targeting regime in the context of the recent Turkish experience. To this end, capital flows and country risk equations are estimated for the Turkish monthly data pertaining the inflation targeting regime implementation period. The results from the capital flows models based on portfolio approach strongly suggest that the real effective exchange rates in Turkey during the period are determined by foreign interest rates and the Emerging Markets Bond Index (EMBI) but not by the domestic interest rates in the long run. This supports the view that the risk premium channel dominates the standard portfolio channel in the determination of real exchange rates in Turkey during the period. The country risk of Turkey, proxied by the EMBI spread in the long run is determined by risk appetite of foreign investors and domestic variables including real debt stock, real consolidated budget balance, international gross reserves, current account deficits and credit ratings. All these results are found to be important manifestations of the presence fiscal dominance in Turkey. Consequently, contrary to the postulations of the conventional monetary policy transmission mechanism, interest rate increases to cope with inflationary pressures may lead to an inflation acceleration, rather than the reverse.

This study aims to analyze the causes and consequences of sudden stops in international capital flows with special reference to the recent Turkish experience. We aim to investigate also the vulnerability of the Turkish economy to a sudden stop and compute the required change in the real exchange rates for a current account adjustment in the face of a sudden stop. The assessment of the economic and structural indicators, which are assumed to be related with the resilience of the economy against sudden stops, such as openness and dollarization, refers that the risk of experiencing a sudden stop has increased in Turkey in the last two years, despite a decrease in its exposure to the destructive effects of such shocks thanks to the structural improvements in the economy. Our empirical results based on a small open economy model with tradables and non-tradables suggest that a sudden stop that requires the closing of the current account imbalance in Turkey would necessitate a real depreciation of around 36 percent as of May 2008 under the assumption that international reserves were not used in order to mitigate the level and the effects of the adjustment. Although the effects of such a real depreciation may be milder due to the decreased currency mismatches in the public and banking sector, there is still the risk of experiencing a financial crisis following a sudden stop because of the high liability dollarization in the real sector.

This thesis analyses the Spanish financial system and foreign policy from a political economy point of view. The foundation, development and transformation of the financial elite in Spain and its affiliations with the policy-making elite are the main concerns of this study. The traditionally complex and interlocking relationship between the financial elite and the policy-making elite in Spain is a perfect showcase to demonstrate how policy and economy affect each other interchangeably. The financial system of Spain has always been highly oligopolistic which led to the continuation of its traditional political and economical protection for many decades before, during and after the liberalisation process went underway. This traditional protection has a very unique characteristic given the fact that it survived nearly a century, under a succession of various political and regulatory regimes with very different ideological agendas. &ldquo / How could the banking sector preserve its power and influence under many different political ideals and economic orientations&rdquo / is one the questions to which an answer is sought in this study. Naturally, this answer also covers the origins and structure of the power and influence that the financial elite held over the domestic and foreign policies of the country. Also, the mutual and complex relationship between economy and foreign policy as well as policy-making elite and economic elite, is analysed in this thesis. In other words, the consequences of the shifts in foreign and domestic policy agendas on the Spanish financial elite are studied.

In the first part of this thesis the prices of six non-ferrous metals (aluminum, copper, lead, nickel, tin, and zinc) are used to assess the forecasting performance of GARCH models. We find that the forecasting performances of GARCH, EGARCH, and TGARCH models are similar. However, we suggest the use of the GARCH model because it is more parsimonious and has a slightly better statistical performance than the other two. In the second part, the prices of six non-ferrous metals and the price of crude oil are used to examine the dynamic links between oil and metal returns by using the BEKK specification of the multivariate GARCH model and the Granger causality-in-variance tests. Results of our study agree with the previous studies in that the crude oil market volatility leads all non-ferrous metal markets. In order to move as far away from the effects of 9/11, daily data for the period December 12, 2003 &ndash / December 15, 2008 is used for the data analysis part of the thesis.

This thesis investigates the nature of macroeconomic changes by focussing on the monetary policy changes in Turkey between 1990Q1-2011Q4 and assesses the variability of the economy via impulse response functions obtained from VAR analyses. The period of the analyses is characterized with changes of the definitions of monetary aggregates in 2002 and 2007. In order to have consistent monetary series, the new and old series are constructed according to new and old definitions and then analyses are carried out with each type of series and comparisons are given among the monetary series.

This dissertation consists of three independent essays in Macroeconomics. The first essay studies whether efficiency can be improved by introducing government-issued illiquid bonds to an economy where money is the only asset and essential. In contrast with perfectly liquid bonds, illiquid bonds can increase societal welfare in two ways: First, allocating consumption goods among heterogeneous agents more efficiently; second, stimulating consumption and output level by loosening the liquidity constraints of households. More importantly, since societal welfare is elevated persistently when the inflation rates range from a level slightly above Friedman Rule to an upper bound, this essay provides an insight into the essentiality of illiquid bonds. The second essay provides a novel propagation mechanism of productivity shocks to explain an empirical fact: The response curve of output to a positive productivity shock reaches its peak up to eight quarters after the shock. Using a micro-founded monetary search model and focusing on agents’ decisions on establishing long-term trading relationships in the goods market, I show that when a positive shock takes place in the economy, marginal agents break down previous trading relationships and explore better matching opportunities. As a result, shortly after the shock, the average productivity level of transactions increases, but the total number of transactions decreases. The calibrated model shows that the latter effect dominates, resulting a slightly decrease of aggregate output after a positive productivity shock. The search friction, together with the monetary channel, gives rise to a delayed output response at the aggregate level. The third essay develops a general equilibrium theory of household formation – i.e., marriage – following Coase’s theory of firm formation. Individuals in the model consume both market-and home-produced commodities, and home production is facilitated through marriage. Market frictions, including taxation, search and bargaining problems, increase marriage rates when home and market goods are substitutes. In particular, inflation, as a tax on market activity, makes household production and hence marriage more attractive, as long as singles use cash more than married individuals, which is supported by data. The prediction that inflation and other taxes affect household formation is also supported by evidence.

This dissertation consists of three independent essays in Macroeconomics. The first essay studies whether efficiency can be improved by introducing government-issued illiquid bonds to an economy where money is the only asset and essential. In contrast with perfectly liquid bonds, illiquid bonds can increase societal welfare in two ways: First, allocating consumption goods among heterogeneous agents more efficiently; second, stimulating consumption and output level by loosening the liquidity constraints of households. More importantly, since societal welfare is elevated persistently when the inflation rates range from a level slightly above Friedman Rule to an upper bound, this essay provides an insight into the essentiality of illiquid bonds. The second essay provides a novel propagation mechanism of productivity shocks to explain an empirical fact: The response curve of output to a positive productivity shock reaches its peak up to eight quarters after the shock. Using a micro-founded monetary search model and focusing on agents’ decisions on establishing long-term trading relationships in the goods market, I show that when a positive shock takes place in the economy, marginal agents break down previous trading relationships and explore better matching opportunities. As a result, shortly after the shock, the average productivity level of transactions increases, but the total number of transactions decreases. The calibrated model shows that the latter effect dominates, resulting a slightly decrease of aggregate output after a positive productivity shock. The search friction, together with the monetary channel, gives rise to a delayed output response at the aggregate level. The third essay develops a general equilibrium theory of household formation – i.e., marriage – following Coase’s theory of firm formation. Individuals in the model consume both market-and home-produced commodities, and home production is facilitated through marriage. Market frictions, including taxation, search and bargaining problems, increase marriage rates when home and market goods are substitutes. In particular, inflation, as a tax on market activity, makes household production and hence marriage more attractive, as long as singles use cash more than married individuals, which is supported by data. The prediction that inflation and other taxes affect household formation is also supported by evidence.