creator: Caglayan, Mustafa
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Essays in macroeconomics
description- – It is often argued that monetary instability reduces the informational content of market signals and thereby hinders the efficient allocation of investment. Essay I, uses a signal extraction framework to give empirical content to this idea. In particular, we show why this framework predicts that, as monetary uncertainty decreases, the cross-sectional distribution of investment widens. We then explore this hypothesis using panel data information for UK companies over twenty years and receive support from the data. Essay II. investigates whether the Istanbul Bourse is efficient or not. To carry out the investigation, the paper applies Johansen's cointegration technique to twelve asset prices from the Istanbul Bourse along with the exchange rate between the U.S. Dollar and the Turkish Lira. The results of these tests suggest that investors in the Istanbul Bourse do not seem to consistently reap abnormal profits by being able to predict future prices. Although asset prices seem to move together in the long run, the use of ECM fails to improve forecasts over univariate martingale predictions. Although the existence of international trade in similar products has captured the attention of trade theorists over the last two decades, it has not been incorporated into models of investment. Essay III develops a Tobin's Q model of capital investment with a purpose to explain the investment decision rule of a firm operating in both domestic and foreign output markets in competition with a foreign rival. Empirical results provide support for the model's predictions.
- – 1997-01-01
Fractional Monetary Dynamics
description- – We test for fractional dynamics in U.S. monetary series, their various formulations and components, and velocity series. Using the spectral regression method, we find evidence of a fractional exponent in the differencing process of the monetary series (both simple-sum and Divisia indices), in their components (with the exception of demand deposits, savings deposits, overnight repurchase agreements, and term repurchase agreements), and the monetary base and money multipliers. No evidence of fractional behavior is found in the velocity series. Granger's (1980) aggregation hypothesis is evaluated and implications of the presence of fractional monetary dynamics are drawn.
- – 1998-01-01
- – application/pdf
Fractional Monetary Dynamics
description- – We test for fractional dynamics in U.S. monetary series, their various formulations and components, and velocity series. Using the spectral regression method, we find evidence of a fractional exponent in the differencing process of the monetary series (both simple-sum and Divisia indices), in their components (with the exception of demand deposits, savings deposits, overnight repurchase agreements, and term repurchase agreements), and the monetary base and money multipliers. No evidence of fractional behavior is found in the velocity series. Granger's (1980) aggregation hypothesis is evaluated and implications of the presence of fractional monetary dynamics are drawn.
- – WP321
- – 1998-01-01
- – application/pdf
Long memory or structural breaks: Can either explain nonstationary real exchange rates under the current float?
description- – This paper considers two potential rationales for the apparent absence of mean reversion in real exchange rates in the post-Bretton Woods era. We allow for (i) fractional integration and (ii) a double mean shift in the real exchange rate process. These methods, applied to CPI-based rates for 17 countries and WPI-based rates for 12 countries, demonstrate that the unit-root hypothesis is robust against both fractional alternatives and structural breaks. This evidence suggests rejection of the doctrine of absolute long-run purchasing power parity during the post-Bretton Woods era.
- – WP380
- – 1999-01-01
- – application/pdf
Persistence in International Inflation Rates
description- – We test for fractional dynamics in CPI-based inflation rates for twenty-seven countries and WPI-based inflation rates for twenty-two countries. The fractional differencing parameter is estimated using semiparametric and approximate maximum likelihood methods. Significant evidence of fractional dynamics with long-memory features is found in both CPI- and WPI-based inflation rates for industrial as well as developing countries. Implications of the findings are considered and sources of long memory are hypothesized.
- – WP333
- – 1998-04-01
- – application/pdf
Persistent Dependence in Foreign Exchange Rates? A Reexamination
description- – We test for stochastic long-memory behavior in the returns series of currency rates for eighteen industrial countries using a semiparametric fractional estimation method. A sensitivity analysis is also carried out to analyze the temporal stability of the long-memory parameter. Contrary to the findings of some previous studies alluding to the presence of long memory in major currency rates, our evidence provides wide support to the martingale model (and therefore for foreign exchange market efficiency) for our broader sample of foreign currency rates. Any inference of long-range dependence is fragile, especially for the major currency rates. However, long-memory dynamics are found in a small number of secondary (nonmajor) currency rates.
- – WP377
- – 2000-04-01
- – application/pdf
Exchange Rate Uncertainty and Firm Profitability
description- – This paper investigates the effects of permanent and transitory components of the exchange rate on firms' profitability under imperfect information. Utilizing a signal extraction framework, we show that the variances of these components of the exchange rate process will have indeterminate effects on the firm's growth rate of profits, but will have predictable effects on its volatility. An increase in the variance of the permanent (transitory) component in the exchange rate process leads to greater (lesser) variability in the growth rate of the firm's profits, thus establishing that the source of exchange rate volatility matters in analyzing its effects. Implications of our theoretical findings for the empirical modeling of the underlying relationships are discussed.
- – 2000-02-16
- – application/pdf
Exchange Rate Effects on the Volume and Variability of Trade Flows
description- – This paper investigates the effects of exchange rate uncertainty on the volume and variability of trade flows. Employing a signal extraction framework, we show that the direction and magnitude of importers' and exporters' optimal trading activities depend upon the source of the uncertainty (general economic shocks, fundamental factors driving the exchange rate process, or noise in the signal of policy innovations), providing a rationale for the contradictory empirical evidence in the literature. We also show that exchange rate uncertainty emanating from general economic shocks and the fundamental factors reduces the variability of trade flows, while that related to noise in the signal of policy innovations increases variability.
- – 2001-09-12
- – application/pdf
Nonlinear Effects of Exchange Rate Volatility on the Volume of Bilateral Exports
description- – In this paper, we empirically investigate the impact of exchange rate volatility on real international trade flows utilizing a 13-country dataset of monthly bilateral real exports for 1980--1998. We compute one-month-ahead exchange rate volatility from the intra--monthly variations in the exchange rate to better quantify this latent variable. We find that the effect of exchange rate volatility on trade flows is nonlinear, depending on its interaction with the importing country's volatility of economic activity, and that it varies considerably over the set of country pairs considered.
- – WP488
- – 2002-07-30
- – application/pdf
The Impact of Macroeconomic Uncertainty on Trade Credit for Non-Financial Firms"
description- – In this paper we hypothesize that greater macroeconomic uncertainty would cause firms to increasingly turn to their suppliers as a source of finance, making greater use of trade credit. We test this hypothesis using a panel of non-financial firms drawn from the annual COMPUSTAT database and show that an increase in macroeconomic uncertainty leads to a narrowing of the cross-sectional distribution of firms' trade credit-to-sales ratios.
- – WP566
- – 2003-06-01
- – application/pdf
Re-examining the Transmission of Monetary Policy: What More Do a Million Observations Have to Say
description- – In this paper we re-examine banks' lending behavior taking into account changes in the stance of monetary policy in conjunction with changes in financial sector uncertainty. Using a very large data set covering all banks in the US between 1979--2000, we show that financial sector uncertainty plays an important role in banks' lending decisions: for a given size classification, less liquid banks (and generally smaller banks) lend proportionally more than stronger counterparts in times of higher uncertainty. More importantly, we provide conclusive evidence that the bank lending channel is either nonexistent or at best not very important for the U.S.
- – WP561
- – 2004-09-01
- – application/pdf
Uncertainty Determinants of Corporate Liquidity
description- – This paper investigates the link between the optimal level of non-financial firms' liquid assets and uncertainty. We develop a partial equilibrium model of precautionary demand for liquid assets showing that firms change their liquidity ratio in response to changes in uncertainty. We test this proposition using a panel of non-financial US firms drawn from the COMPUSTAT quarterly database covering the period 1993--2002. The results indicate that firms increase their liquidity ratios when macroeconomic uncertainty or idiosyncratic uncertainty increases. We demonstrate that our results are robust with respect to the inclusion of interest rates and the index of leading indicators.
- – WP634
- – 2005-12-07
- – application/pdf
Uncertainty Determinants of Firm Investment
description- – We investigate the impact of measures of uncertainty on firms' capital investment behavior using a panel of U.S. firms. Increases in firm-specific and CAPM-based measures have a significant negative impact on investment spending, while market-based uncertainty has a positive impact.
- – WP646
- – 2006-07-28
- – application/pdf
Effects of Exchange Rate Volatility on the Volume and Volatility of Bilateral Exports
description- – We present an empirical investigation of a recently suggested but untested proposition that exchange rate volatility can have an impact on both the volume and variability of trade flows, considering a broad set of countries' bilateral real trade flows over the period 1980-1998. We generate proxies for the volatility of real trade flows and real exchange rates after carefully scrutinizing these variables' time series properties. Similar to the findings of earlier theoretical and empirical research, our first set of results show that the impact of exchange rate uncertainty on trade flows is indeterminate. Our second set of results provide new and novel findings that exchange rate volatility has a consistent positive and significant effect on the volatility of bilateral trade flows.
- – WP641
- – 2006-04-16
- – application/pdf
Firm Investment and Financial Frictions
description- – In this paper we investigate the linkages between firms' capital investment behavior and financial frictions arising from asymmetric information, proxied by their liquidity and degree of uncertainty. In our empirical investigation, we use measures of uncertainty derived from firms' daily stock returns and S&P 500 index returns along with a CAPM-based risk measure. Using a panel of U.S. manufacturing firm data obtained from COMPUSTAT over the 1984-2003 period, we specifically find that financial frictions caused by increases in both intrinsic and CAPM-based measures of uncertainty have a significant negative impact on firms' investment spending.
- – WP638
- – 2006-03-14
- – application/pdf
Political patronage in Ukranian banking
description- – This paper empirically investigates the link between political patronage and bank performance for Ukraine during 2003Q3-2005Q2. We find significant differences between politically affiliated and non-affiliated banks. We present evidence that affiliated banks have significantly lower interest margins. Politically affiliated banks also seem to increase their capital ratio. We conjecture that the reason behind these behavioral differences is to attract foreign investors; we report several mergers that recently took place between affiliated and foreign banks.
- – WP657
- – 2007-02-13
- – application/pdf
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