Research

Working Papers

"Macroeconomic Asymmetries and The Welfare Cost of Business Cycles" (Job Market Paper)(slides)(submitted)

Abstract: I investigate the welfare cost of business cycles due to asymmetries generated by two occasionally binding constraints (OBCs): downward nominal wage rigidity (DNWR) and zero lower bound (ZLB). Although business cycle volatility has declined recently as the Great Moderation literature suggests, I find that the welfare cost of business cycles has significantly increased due to the increased skewness of business cycles over time that is apparent in the data. In a quantitative dynamic equilibrium model that accounts for volatility and skewness changes in pre and post-Volcker periods, I estimate that the welfare cost of business cycles has increased from 0.23% (in terms of consumption equivalence) in the pre-Volcker period to 1.01% in the post-Volcker period, which would be 0.06% in the absence of asymmetry. Counterfactual analysis shows that while both OBCs play a role, the binding ZLB explains most of the welfare effects in the post-Volcker period. Policy counterfactuals indicate that increasing the inflation target from 2% to 4% reduces the skewness of business cycles and the binding rates of both OBCs, thereby leading to a significant decrease in the welfare cost, from 1.01% to 0.74%.

Presented: CBRT, 2024; Midwest Macroeconomic Meeting, 2022; Delhi Winter School, 2021; TX Conference for Macro JMCs, 2021; 15th RGS Doctoral Conference 2022

"Downward Nominal Wage Rigidity and The Optimal Inflation Target" (PDF link)(slides)(submitted)

Abstract: I investigate the welfare maximizing steady-state inflation rate in a heterogeneous-agent New Keynesian model with Downward Nominal Wage Rigidity (DNWR). After matching the annual wage change distribution in the U.S., I demonstrate that DNWR has a significant impact on the economy, particularly when the inflation target is set low. The optimal inflation rate is estimated to be as high as 7%, and increasing the inflation target to the optimal level yields a welfare gain of nearly 1.10%. This result remains robust across a wide range of parameterizations. 

Presented: CBRT, 2024; 27th International Computing in Economics and Finance Conference, 2021

"Zombie Firms In Network: Congestion and Evergreening" (SSRN link) (joint with O. Akarsu and H. Torun) (submitted)

Abstract: We explore the spillover impact of zombie firms in Türkiye by exploiting a rich administrative dataset that contains firm-level information on balance sheets, inter-firm sales, employment, and firm-bank level credit records. We document three key facts regarding zombie dynamics: (i) Leveraging matched firm-bank level credit registry data, we highlight the presence of an evergreening motive, leading to a misallocation of credit away from productive firms. (ii) Zombie firms, which are on average less productive than the nonzombie firms, impede investment and employment opportunities at healthier firms. Nonzombie firms operating in sectors with a high prevalence of zombie firms experience lower sales, assets, and productivity. (iii) Incorporating B2B sales data structured similarly to firm-level input-output data, our study reveals that firms with stronger upstream or downstream zombie connections tend to exhibit reduced sales, investment, and employment compared to firms without any zombie connections. Moreover, banks supply less credit to healthy firms operating in a zombie network than to firms with fewer zombie connections.

"Demand and Supply-Driven Inflation in Türkiye" (joint with O. Akarsu) (will be available soon)

Abstract: We document the demand and supply driven components of inflation in Turkey following the decomposition of Shapiro (2022). The results suggest that recent hike in inflation starts with supply-driven inflation, but over time it transitioned into an inflationary environment driven by demand. With the recent hawkish stand of CBRT, the demand driven inflation is starting to go down, but there is still significant room for monetary policy intervention. Consistent with the theory, oil-supply and exchange rate shocks act to increase supply-driven contribution, whereas monetary policy tightening acts to reduced demand-driven contribution of inflation. This decomposition can be potentially a useful real-time tracker for policymakers.

"Sectoral Heterogeneity in Wage Stickiness and Monetary Policy" (PDF link) (will be updated soon)

Abstract: Using the price and wage rigidity estimates of previous studies, I find a slightly negative correlation between wage and price rigidity at the industry level. After categorizing 3-digit industries as rigid and flexible, I analyze the impulse responses of real variables to a monetary policy shock. I document a significant response of industrial production in price-rigid industries, whereas in wage-rigid industries the response is still significant but weaker. Consistent with the theory, the response in price- and wage-flexible industries is not significant. The empirical results suggest that due to relatively lower variation in wage stickiness at the industry level, price stickiness plays a more important role in the differential response of industries to a monetary policy shock. Besides, I develop a multi-sector model incorporating sector-level heterogeneity both in wage and price rigidity into an otherwise standard New Keynesian model and analyze the monetary non-neutrality for different specifications. The results of the model verify the empirical findings.

Published Paper

Published Policy Work