This thesis analyzes the factors that determine the portfolio investments to Turkey in the period from 1989:04 to 2008:12. The factors that are examined are budget balance, current account balance, nominal exchange rate between the Turkish Lira and the US dollar, Turkish domestic interest rate, US 3-months Treasury Bill rate, annual inflation rate in Turkey and ISE 100 Index. A Vector Autoregressive Model is used for the purpose of examining the impacts of these variables on the level of portfolio investments to Turkey. The results of the model show that the portfolio investment in Turkey was affected positively by domestic interest rates and negatively by ISE 100 Index in the period before 2001. On the other hand, it is affected positively by exchange rate and US interest rate in the post-crisis period. It is also found that current account deficit affect portfolio investments negatively.

An efficient housing finance system has significant importance both in meeting the housing needs of individuals and in reinforcing the development of the construction, finance and other related sectors of an economy. Today, developed countries have advanced housing finance systems in which funds flow from savers to home-buyers by the mortgage markets. On the other hand, despite its recognized economic and social importance, housing finance often remains under-developed in developing countries mainly due to the lack of macroeconomic stability. Turkey, being a developing country, has made an important step towards the development of a mortgage system with the passage of the new Mortgage Law by the Parliament. Accordingly, the purpose of this thesis is to examine the applicability of mortgage system in Turkey. For this purpose, housing finance systems of some developed and developing countries are reviewed, and the housing finance system in Turkey is explained. Further, causality between the total amount of housing loans issued, inflation and nominal interest rates in Turkey is analyzed with the Toda-Yamamoto VAR approach. VAR analysis shows the negative impact of nominal interest rates on the total amount of housing loans issued in Turkey. To sum up, considering its economic and social environment, Turkey has adapted best international experiences, and it is possible for a mortgage system to develop in the country by the new mortgage legislation combined with the lower interest rates as inflation declines.

This study analyzes the effect of capital outflows on economic growth though the channels described in sudden stop literature. Using the autoregressive distributed lag (ARDL) bounds testing approach / it is found that there is a cointegration between capital inflows, real exchange rate and real GDP. The results show that there is a significant positive long-run relation between capital inflows and growth. It is also found that capital inflows affect real output in the short run. The results show that real exchange rate is not a significant determinant of real output both in the short run and long run. Moreover, in order to capture the dynamic responses, a vector autoregressive (VAR) methodology has been employed. The results show that a negative innovation in capital inflows causes real exchange rate depreciation and output contraction.

The purpose of this study is to analyze financial dollarization phenomenon in the Turkish economy since the beginning of 1990&rsquo / s based on Ize and Levy Yeyati&rsquo / s (2003) minimum variance portfolio (MVP) framework. Financial dollarization, steamed by unfavorable macroeconomic conditions and uncertainties, is revealed by the experiences of recent banking and financial crisis as carrying significant drawbacks such that it complicates economic policy implementation and contains the seeds of fragility for the whole economy as well. Although, considerable progress has been achieved in reducing inflation levels and sustaining macroeconomic stability, financial dollarization displays rather an enduring stance. MVP approach is based on optimizing the currency composition of financial contracts depending on the risk and the return profile of agents&rsquo / portfolios. According to this approach, financial dollarization is an increasing function of the inflation volatility and a decreasing function of the real exchange rate volatility. In line with this framework, financial dollarization in the Turkish economy during 1990-2011 period is studied by also considering other important macroeconomic risk indicators and it is tried to shed some light on the success of inflation targeting policy in dealing with dollarization phenomenon.

The question of exchange rate pass-through into domestic inflation is a widely analyzed issue due to its importance as regards to monetary policy, exchange rate policy and in general macroeconomic policy for open economies. Although most of the literature is focused on the exchange rate pass-through at the aggregate level, there are fewer studies that are done at the sectoral level for the Turkish economy. In this study by using a distribution chain of pricing model developed by McCarthy (2000), pass-through of exchange rates and import prices into domestic prices for selected sectors are examined for the Turkish economy. The emprical model estimates a Vector Auto Regression (VAR) to see pass-through dynamics through times and across the selected sectors. This study covers March 2002-December 2010 period / the period of floating exchange rates. Findings indicate that pass-through has fallen recently in Turkey. Moreover, results of the analysis show that external factors explain an important proportion of the variance of domestic prices for the sectors which have a larger import share.

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Financial data, such as daily or monthly maximum log return of stock price usually possess heavy tail and skewness properties. In this thesis, we consider stock price data of computer hardware and money center banks. Heavy-tailed distributions including Pearson type IV, Pearson type VII and stable distribution were fitted to the daily log return of the data sets, and goodness of fit were compared. For the monthly maximum log return, nonlinear threshold time series models were fitted with heavy tailed innovation distributions. In addition, the value at risk and volatility of the data sets are derived from the fitted distributions.

Abstract It has long been Taiwan¡¦s primary goal to be the Asia-Pacific financial center, especially after joining WTO, the internationalization of stock exchange, finance, and economy has undoubtedly become an inevitable trend. After Taiwan ensured the policy goals of financial liberalization, internationalization, as well as building Taiwan into an Asia-Pacific operation center in the mid-1980s, government has gradually eased financial restrictions and scrapped limits on foreign investment in the domestic stock market to expand and stabilize stock market through opening to foreign investment, and to direct investors toward rational trading through professional analysis of foreign investment capital. Although foreign capital inflow can strengthen stock market which helps accelerate economic development and internationalization; nevertheless, Mexico¡¦s and Asia¡¦s financial crisis in 1990s due to the abolishment of restrictions on capital movement, turned the policy of easing restrictions on foreign participation in the stock exchange into a double-edged sword. That is to say, while it is easier for enterprises to finance business and expand total demands to accelerate economic growth, the excessive foreign capital movement may impact domestic economy and finance, causing rapid expansion of capital and credit, inflation, as well as appreciation of real exchange rate. This study attempts to explore the dynamic effect of fundamental and stock trading factors on the stock¡¦s return rate after government eased restrictions on foreign participation in the stock exchange at the third stage of entirely opening to foreign investment. The results include that first, after the third stage of opening to foreign investment, foreign capital inflow actually causes the validity of exchange rate and monetary supply to influence stock¡¦s return rate, which changes the interpretation on the cause-and-effect of stock¡¦s return rate. Second, shortened reaction time on the impact of fundamental and trading factors on stock¡¦s return rate can rapidly reflect on stock¡¦s return rate, which helps stabilize stock market. And finally, the decomposition of forecast error variance verifies that financial internationalization indeed structurally changes how Taiwan¡¦s macroeconomic environment interprets stock¡¦s return rate. Moreover, as for trading behavior, the influence of the more speculative trading credit on stock¡¦s return rate decreases, and the foreign capital deregulation helps stabilize stock market. Key word: foreign investment, stock return, fundamental factor, trading factor, unit root, VAR

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The recent financial and economic turmoil driven by housing market has led the economists to refocus on the issue about monetary policy and asset price, especially housing price. In this dissertation I investigate the various relationships between monetary policy and asset prices in U.S. economy through steady state Bayesian VAR (SS BVAR) and revised Taylor-typed interest rate rule (Forward-looking rule) based on Generalized Method of Moments (GMM) methodology. In chapter II, steady state Bayesian VAR (SS BVAR) methodology is introduced and multi step-ahead forecasts are executed. Upon usual squared error loss methodology the forecasting performances of SS BVAR are evaluated in comparison with standard BVAR and conventional VAR. Equal predictive ability tests following Giacomini and White (2006) verify that the SS BVAR is superior in forecasting power especially in long-horizons. In chapter III, identification issue involving housing sector is explored through two different ways: economic theory-based approach and algorithms of inductive causations. Despite the different approaches the housing sector’s specifications are somewhat similar. Impulse response analyses demonstrate that monetary shock to housing price is relatively smaller, less significant, and less lasting when compared to Choleski identification. Also historical decomposition and conditional forecast analyses indicate that the housing price shock itself is crucial in accounting the sharp increase and sudden drop of housing price since 2003. Upon the estimated evidences I conjecture that there are much uncertainty between monetary policy and housing price, recalling the consideration of institutional factors when trying to accounting housing sectors. In chapter IV, following Dupor and Conley (2004), I explore how Fed responds to stock price and inflation movements differently across high and low inflation sub-periods. Replicated linear estimation results of Dupor and Conley (2004)’s indicate that Fed raises its target interest rate responding to stock price gap with statistical significance. Linear estimation results, however, are not robust to small change of chosen breakpoint especially in inflation coefficient. So I construct nonlinear model as an alternative way to relax this problem and carry out test of structural change with the nonlinear framework. Consequently both nonlinearity and structural change matter in explanation of Fed’s behavior in this type of reaction function analysis. Given structural change, inflation coefficients movement shows that Fed has responded to expected inflation pressure nonlinearly across sub-period, while stock price gap coefficient shows explicit break around early ’90 in line with Dupor and Conley (2004)’s finding.