Working Papers

1. Debt Payments and Real Economic Activity over Short and Medium Run with M. Kilinc, (2020) (submitted)

In this paper, we investigate the role of household debt service burden on the short and medium run economic growth of a sample of advanced countries. Using debt service ratio data provided by the Bank for International Settlements, we find that debt service burden depresses economic growth over both short and medium run. This finding is in contrast to the effect of household debt level, which boosts economic growth in the short run while depressing in the long run as in Mian et al. (2017). We further find the same protracted effect of debt service burden on unemployment and household consumption. Therefore, our paper uncovers a new transmission channel of the debt markets (i.e., debt service channel) on economic growth, and shows that this channel is quantitatively much stronger than the household debt level channel. When faced with a rise in the debt service burden, households need to adjust other decision variables in order to satisfy their budget constraints. The present results indicate that they decrease their consumption levels significantly, with adverse effects on economic output and employment.

2. Macroeconomic Effects of Oil Price Volatility with S. Degirmen and O. Saltık (2019)

Given the heightened oil price volatility in recent years, this paper investigates the effects of oil price volatility on domestic production, exchange rates and interest rates in the perspective of oil-exporter and oil-importer developing countries. Using a structural VAR model with block exogeneity assumption, the results indicate that the domestic production and exchange rates behave differently across the country types while the interest rates decrease following an unexpected increase in oil price volatility. Our empirical results also points out that the responses of macroeconomic variables to oil price volatility shocks depend on the level of dependency on oil.

3. Home Purchases with and without Mortgage Credits: Implications for Portfolio Investment, with A. Gunes (2019)

This paper is an empirical assessment of the effects of home purchases on portfolio allocation at the time of purchase as buying a home is one of the largest purchasing decisions over the lifetime of a typical household in the US. Using the Panel Study of Income Dynamics data, the results indicate significant differentiation between portfolio behaviours of mortgage purchasers and non-mortgage purchasers at the time of purchasing decision. While mortgage purchasers are more inclined to save for the down payment in the form of riskless assets, non-mortgage purchasers who are planning to purchase a home without any mortgage loans invest mostly in the risky assets. The results imply that an optimal portfolio allocation for mortgage purchasers could help them make the purchase earlier or buy larger houses with the same duration of the saving.

5. Exchange Rate Volatility and Foreign Sales: Evidence from US Firm-level Data with N. Solakoglu, (2018).

This paper analyzes the effect of exchange rate volatility on foreign sales using firm-level and destination-specific foreign sales data of US firms with a special focus on the role of foreign market dependence and the number of foreign destination markets. The empirical results show that while greater exchange rate volatility doesn’t affect foreign sales at an average US firm listed in stock markets, the net effect depends on the intensity of foreign sales. While firms with low share of foreign sales in total sales or firms that have foreign sales activity at a few destination are exposed to depressing effect of exchange rate volatility, the effect gradually disappears when the share of foreign sales or the number of destination countries increase. Moreover, we find that increasing foreign sales share rather than increasing number of destination countries is more effective at reducing the depressing effect of the volatility.

6. Asset Location and Asset Allocation Decisions in the Presence of Housing Investment'with D. Pelletier, (2016).

This paper develops a life-cycle model to address the joint effects of housing investment tax-deferred accounts on the portfolio allocation of households. Besides the distinction between the taxable accounts and tax-deferred accounts, the model employs a comprehensive housing investment structure and Epstein-Zin recursive preferences. The results of the model show that both tax-deferred accounts and housing investment have sizable crowding out effect on the risky asset investment of households and the effect is found to be larger for housing investment than for tax-deferred accounts

6. Identification of Monetary Policy Shocks in Turkey: A SVAR Approach with M. Kilinc, (2016).

This paper tries to identify the monetary policy shocks in Turkey during the explicit inflation targeting period starting from 2006 using a structural VAR approach. We model Turkey as a small open economy where domestic variables are affected by external factors like commodity prices and global demand but domestic variables do not affect external variables. We analyze the effects of four shocks on Turkish economy: two domestic shocks of interest rates and risk premium, and two external shocks of commodity prices and global demand. All shocks are found to have significant effects on main economic variables. Positive interest rate shocks appreciate the domestic currency and decrease the inflation whereas positive risk premium shocks cause a depreciation and an increase in inflation. Both of these shocks also cause a decrease in the domestic activity. Being an open and internationally integrated economy, Turkey is significantly affected by global shocks. A positive global demand innovation leads to an increase in global commodity prices, which together increase both the level of prices and economic activity in Turkey. Positive commodity price shocks also increase the inflation in Turkey.