Job Market Paper

Financial Frictions and Macroeconomic Fluctuations in Emerging Economies November 2011

Abstract: Estimated dynamic models of business cycles in emerging economies predict acyclical or procyclical interest rate whereas it is countercyclical in the data. This paper proposes and estimates a small open economy model in which a time-varying risk premium emerges endogenously through a variant of the financial accelerator mechanism due to Bernanke, Gertler, and Gilchrist (1999). The estimated model can account for the countercyclicality of interest rate and other key business cycle moments. Time varying uncertainty in the firm specific productivity explains more than 70 percent of the variances of the trade balance and of the country risk premium. The predicted contribution of nonstationary productivity shocks to explaining output variations fall in between the high estimate reported by Aguiar and Gopinath (2007) and the low estimate reported by Garcia-Cicco, Pancrazi, and Uribe (2010).

Working Papers

International Factors, Country Spreads and Emerging Countries: A Panel VAR Approach
April 2012

Abstract: This paper investigates the extent to which global financial conditions contribute to the macroeconomic fuctuations in emerging economies using a panel structural VAR analysis. The main findings are: (1) Global risk shocks explain about 20 percent of movements in aggregate activity in emerging economies. (2) The contribution of U.S. Interest Rate shocks to emerging market business cycle fuctuations is nil. Therefore, the role of U.S. interest rate shocks in driving the business cycle fluctuations in emerging economies, as emphasized in the previous literature, is taken up by the global risk shocks. (3) Sovereign spread shocks explain about 15 percent of business cycles in emerging economies. (4) The feedback from domestic fundamentals to country borrowing rate, even after a measure of global risk is included in the analysis, play an important role in transmitting the external shocks to domestic economy. (5) There is strong positive co-movement between sovereign risk and banking sector risk in emerging economies. Higher sovereign risk leads to higher bank lending spreads and lower economic activity. (6) The feedback between sovereign risk and domestic banking sector risk add to higher domestic macroeconomic volatility in emerging economies.

East-West Economic and Financial Linkages in Europe,
(with Phakawa Jeasakul and Christoph Klingen)
August 2011

A Note on the Estimation of the Atemporal Elasticity of Substitution Between Tradable and Nontradable Goods
February 2011

Optimal Monetary Policy in a Model with Customer Markets
(with Ryan Chahrour)
October 2009

Causes and Effectiveness of Foreign Exchange Interventions for the Turkish Economy
(with O. Y. Emir, G. Şahinbeyoğlu, and Umit Ozlale)
February 2005


Publications

The Effectiveness of Foreign Exchange Interventions Under Floating Exchange Rate Regime for the Turkish Economy: A Post-Crisis Period Analysis
(with O. Y. Emir, G. Şahinbeyoğlu, and Umit Ozlale)
Applied Economics, 38:12, pages 1371-1388, 2006.