This study investigates the implications of financial dollarization for inflation targeting framework. To this end, monetary policy rule, inflation targeting performance and international reserves equations are estimated for twenty four inflation targeting countries with different levels of financial dollarization. The results based on the panel data estimations indicate that monetary policy rule and behavior of accumulating international reserves are affected by the degree of financial dollarization. Furthermore, the study finds that inflation targeting performance is not affected by the level of financial dollarization. Consequently, the empirical analysis suggests that even if financial dollarization does not affect the inflation targeting performance, it does affect the monetary policy rule and the variables to be taken into account to reach the target.

Tax systems are used for economic and social concerns such as promoting the economic growth or decreasing the income inequality and tax evasion, increasing the social welfare, etc. Researchers argue that the consumption taxes are quite high in Turkey compared to other OECD countries. Therefore, the proposed tax reform in this study is to decrease the Value Added Tax (VAT) rate and to increase the top statutory income tax rate. This thesis constructs and presents first set of a 55-period overlapping generations (OLG) model for Turkey to analyze and evaluate the impact of tax reform on the Turkish macroeconomic variables and welfare. The results show that the proposed tax reform provides welfare gains to the low and middle income individuals while high income individuals are suffered.

The purpose of this thesis is to examine Turkey&rsquo / s export competitiveness in the first 15 members of the European Union (EU-15 market) against non-EU-15 competitors. The study covers the recent period since the Customs Union agreement signed between Turkey and the EU at the end of 1995. Turkey&rsquo / s position in the EU-15 market is analyzed in detail by focusing upon major dimensions of export competitiveness / such as &lsquo / export similarity&rsquo / , &lsquo / export diversification&rsquo / , &lsquo / intensive and extensive margins&rsquo / , &lsquo / revealed comparative advantages&rsquo / , &lsquo / dynamic market positioning&rsquo / and &lsquo / competitive threat&rsquo / . We use various indexes from the literature and develop some original indexes as our own contributions. In terms the subject-matter, time dimension and data-detail of our study, all indexes utilized in this thesis are applied to Turkey&rsquo / s case for the first time. Examining price and quantity differences across countries and within each industry, Turkey&rsquo / s competitive position in the EU-15 market is analyzed as compared to 30 countries for more than 3000 export-product groups classified according to their technological characteristics. Based on the results, suggestions at the levels of countries, products and technological categories are made for Turkey to improve its export strategy in terms of seizing the existing but unexploited opportunities in the EU-15 market against its competitors. Policy possibilities are also discussed for directing Turkey&rsquo / s competitiveness towards higher value-added products in a rational and strategic way.

This study investigates the determinants and effects of currency and asset substitution in Turkey using quarterly data from 1987:1 to 2002:4. The empirical results from the application of Johansen procedure to a four-variable system containing currency-asset substitution proxy (M2Y/M2)), real income, real exchange rate, and ratchet effect proxy (past peak values of the depreciation of the real exchange rate) suggest the presence of a single cointegration vector among the variables. The results further suggest the endogeneity of the degree of currency substitution for the parameters of the cointegration vector. According to the theory consistent and data-acceptable long-run relationship between the variables, there is a strong ratchet (hysteresis) effect in currency-asset substitution in Turkey. The study contains also the policy implications of both currency substitution and the ratchet effect arising from real exchange rate change shocks in the Turkish economy.

This study investigates the domestic and external determinants of net capital flows to Turkey. The results of the Johansen cointegration analyses indicate that capital flows to Turkey increase in response to increases in domestic real interest rate, domestic real income growth, and budget balance / appreciation of domestic currency / and decreases in financial fragility and the US real interest rates. It can be said that, higher domestic real returns and improved country creditworthiness attract more foreign capital flows to Turkey. In addition, the decreases in world interest rates enable Turkey to enjoy higher capital flows. The findings are theory consistent and data-acceptable.

ABSTRACT THE DOMINANCE OF THE DOLLAR AND ITS SUSTAINABILITY IN THE INTERNATIONAL MONETARY SYSTEM K&ouml / se, Tekin M.S., Department of Economics Supervisor: Assoc. Prof. Dr. Aylin Ege June 2008, 121 pages The aim of this thesis is to analyze and evaluate the dominance of the dollar and its sustainability in the international monetary system in the light of recent literature and relevant statistical data. Considering the determinants of an international currency, this thesis focuses on the linkages of the dominance of the dollar with the challenge of the euro as an alternative international currency, the current account deficit of the U.S. and foreign exchange reserve accumulation and reserve diversification decision of foreign central banks. The analysis on these determinants indicates that the U.S. dollar is facing many challenges and may face further challenges in sustaining its dominance as an international currency. Given the significance of the U.S. economy and dominance of the dollar as an international currency, the findings of this study indicate that although the euro has not much potential to surpass the dollar as an international currency in the short-term, it is more likely for the international monetary system to witness the existence of multiple international currencies and decline in the degree of the dominance of the dollar in the 21st century.

This study investigates whether there are technology spillovers through foreign direct investment (FDI) in Turkish manufacturing industry. Before the econometric estimation, theoretical and empirical literature on FDI and technology spillovers especially by transnational corporations (TNCs) is analyzed in detail. Also, historical perspective of FDI and review of the related literature for Turkey constitutes an important part of the study. To test the spillover effects of FDI, the dataset including sectoral level determinants of 89 different sectors, according to ISIC (International Standard of Industrial Classification) 4-digit industrial classification, in Turkish manufacturing industry is used. The dataset is obtained from Turkish Statistical Institute (TurkStat) for the period 1983-2001. Sectoral market shares of foreign firms are used as spillover variables / and horizontal spillovers are tested. Although some specifications of variables produce negative and insignificant results, the significant regression results show that there are positive spillover effects from foreign firms to domestic firms through horizontal spillovers. In this estimation, six different proxies of capital stock are used to test the robustness of the results / and also, spillovers are tested in terms of low-technology-using (Low-Tech) sectors and high-technology-using (High-Tech) sectors.

The causal relationship between energy consumption and economic growth has been a controversial subject of the empirical literature. However, there is no common consensus neither on the existence nor on the direction of the causal relationship between energy consumption and economic growth. The purpose of this study is to investigate the causal relationship between energy consumption and economic growth using a consistent data set. Recently developed Granger causality tests in panel data models are used to uncover the existence and direction of causality between energy consumption economic growth in 21 low-income, 35 middle-income, and 26 high-income countries over the period 1990&ndash / 2004. The empirical results explicitly support that the Granger causality from energy consumption to economic growth is more common in high-income countries than low-income and middle-income countries. Furthermore, the Granger causality from economic growth to energy consumption is more common in low-income and middle-income countries than high-income countries.

This thesis investigates the determinants of financial development in Turkey. Principle Component Analysis (PCA) is employed in order to examine the main determinants of financial sector development and shed light on the structure of the financial system in Turkey. The empirical studies on financial development suffer from the measurement problem. This study aims to remedy the measurement problem by providing proxies that explain different aspects of financial development more accurately than other proxies used in the extant literature. Hence, the present study constitutes a strong basis for studies that rely on measuring financial development in Turkey.

This study empirically investigates the validity of the competition and stability trade-off hypothesis for the Turkish banking system. To this end, we consider annual bank level accounting data for the 1990-2008 period and compute the most commonly used measures of banking stability and competition. The effects of macroeconomic factors and bank specific indicators including the ownership structure are also taken into account. The fixed effects panel estimation results suggest that the relation between competition and stability is not invariant to the use of alternative indicators. The results based on the Z-Index as a measure of bank stability support the competition-stability and competition-fragility views when concentration ratios and the H-Statistics are used as the alternative competition indicators, respectively. However, when nonperforming loan ratio, a proxy for loan portfolio risk, is used as a stability measure, exactly the opposite outcome is obtained. The results also change when the ownership structure of banks is considered. Consequently, in line with the literature stating that there is no clear-cut relation between competition and stability, the direction of this relation for the Turkish banking system changes with different model specifications.