Research

Abstract: Net wealth is distributed differently across various age cohorts in European countries. The net wealth distribution pattern in Western EU countries conforms to the life cycle hypothesis, whereas net wealth accumulation peaks at earlier ages in Eastern European countries. This study investigates the underlying reasons for these differences in net wealth distribution and evaluates how they affect monetary policy transmission. To this end, we develop a modified New Keynesian model with a multiperiod overlapping generations demand side to account for demographic and productivity-gap factors, analyzing their interactions with monetary policy within a general equilibrium setting. Using the Household Finance and Consumption Survey database, we calibrate the model for two sets of European countries and replicate the shape of net wealth distribution. Our findings suggest that the shape of net wealth distribution by age significantly determines monetary policy effectiveness and should be considered when designing and implementing monetary policy.

Abstract: The last decades proved that policymaking without considering uncertainty is impracticable. This paper proposes a robust optimal policy under uncertainty in response to financial and inflation shocks by acknowledging financial stability as an explicit monetary policy objective. To do so, we augment a financial DSGE model with model misspecification. We show that model ambiguity on the financial side requires a passive monetary policy stance. However, if the uncertainty originates from the supply side of the economy, an aggressive response of interest rate is required. We also show the impact of an additional macroprudential tool on the dynamics of the economy.

Abstract: The policy debate in Turkey over the impact of interest rate on inflation concerns the question of what policymakers should do when faced with volatile and high inflation. Motivated by this discussion, we provide an empirical analysis by connecting the cost channel to the Phillips relation. Our findings prove the existence of the cost channel. However, other determinants of inflation -labor share of income, prices of imported inputs and consumption goods- dominates the cost channel in Turkey.

Abstract: This paper provides an extensive analysis of card spending during the COVID-19 pandemic in Turkey by using weekly aggregated and sectoral credit and debit card spending data from March 2014 to December 2020. At an aggregated level, we show that aggregate demand decreases significantly at the early stages of COVID-19 and seems to reinstate its pre-COVID trend. However, when we include the pre-existing conditions of Turkey, the 2018 currency crisis, we observe that the recovery in demand is not that strong. To highlight the underlying reasons for structural change in aggregate demand, we estimate the model with stringency index and unemployment-related search index. The estimated model indicates that containment measures and restrictions and fear of job/income loss mainly explain the overall impact of COVID-19 on aggregate demand. We also examined sectoral data to understand aggregate demand dynamics better. Only the stable and delayable sectors have reached a trend above their pre-pandemic trajectories. However, the social and work-related sectors are far from their respective pre-pandemic trend.

Abstract: COVID-19 has led to changes in individuals' consumption habits, which will cause the calculation of inflation based on the average consumption basket to give distorted information. Using debit and credit card spending data of Turkey, we build CPI weights and compute an alternative pandemic consumption basket price index for Jan 2020-Feb 2021. Our findings show that the pandemic inflation is higher than the official inflation rate during the first lockdown, suggesting a behavioral change in consumption. However, in the reopening period, old habits come back. During the second lockdown, the difference between the pandemic and the official inflation rates is trivial in comparison with the first lockdown.

Abstract: Search and matching models and New Keynesian models with labor market frictions found contradictory responses of unemployment and labor market tightness to a positive technology shock. However, the volatilities of these variables generated by both types of models are not high enough as their empirical counterparts. This paper studies the effect of employment-to-employment flows in a New Keynesian model with labor market frictions. To do so, we assume two types of firms with different wage levels, thereby incentivizing low-paid agents to do an on-the-job search. Differently, from the literature, the main source of wage dispersion is the assumption of different bargaining powers of the firms. The proposed model is capable to replicate the high volatility of unemployment and labor market tightness to a technology shock. Moreover, it is shown that the bargaining power and the search intensity have an amplifying effect on the unemployment rate. 

Abstract:  We study a two-stage probability weighting model [see Tversky and Fox, 1995] in a first-price sealed-bid auction. We present the unique symmetric equilibrium and provide some experimental support for our model.

Abstract:  This paper studies how asset price model misspecification affects the conduct of monetary policy under commitment in a New Keynesian model using robust control techniques. We find that monetary policy reacts aggressively to both asset price and inflation shocks to guard herself against worst-case outcome.

Abstract: We present an accessible narrative of the Turkish economy since its great 2001 crisis. We broadly survey economic developments and pay particular attention to monetary policy. The data suggest that the Central Bank Turkey was a strong inflation targeter early in this period but began to pay less attention to inflation after 2009. Loss of the strong nominal anchor is visible in the break we estimate in Taylor-type rules as well as in asset prices. We also argue that recent discrete jumps in Turkish asset prices, especially the exchange value of the lira, are due more to domestic factors. In the post-2009 period, the Central Bank was able to stabilize expectations and asset prices when it chose to do so, but this was the exception rather than the rule.

Abstract: We observe differences in net wealth distribution by age among European countries. Western EU countries' net wealth distribution is consistent with the life cycle hypothesis. However in Eastern EU countries, wealth distribution is skewed towards younger ages. The aim of the paper is twofold: rst we study the factors of these differences in net wealth distribution by age; second we evaluate the impact of these differences on the transmission of monetary policy. To do so, we develop a modified New Keynesian model where the demand side is represented by a multi-period overlapping generations setup and the supply side of the economy follows a New Keynesian framework. The model is used to analyze the interaction between monetary policy, demographics, productivity differences among generations and wealth accumulation in a coherent general equilibrium model. Household Finance and Consumption Survey (HFCS) database is used to calibrate the model for two groups of European countries. This paper argues that demographics and wealth distribution over age should be expected to have important bearing on the eectiveness and hence conduct of monetary policy.

Abstract: This paper studies the impact of aging on the effectiveness of monetary policy. To do so it introduces an OLG-DNK framework where the demand side is represented by a two-period overlapping generations setup and the supply side of the economy follows a New Keynesian framework. The model enables the study of the interaction of monetary policy with demographics in a coherent general equilibrium model. The main finding is that this merger of two basic strands of the macroeconomics literature implies monetary policy should be expected to be less effective as societies age since the interest rate sensitivity of real economic activity declines as the population ages.