My research interests are Monetary Economics, Macroeconomics, Time Series Analysis. I focus both on empirical and theoretical aspects of these subjects because I believe in the importance of empirical research guided by relevant economic theory.

Here are the summaries of my academic work:

Exploring the informational content of narrow and broad monetary aggregates in the Euro area and Switzerland

Following the novel methodology proposed by Benati (2023, 2026), I estimate the real natural rate of interest and generate inflation forecasts for the Euro area, Switzerland, and several other economies with strongly mean-reverting inflation regimes. Both variables are crucially important for the formulation of effective monetary policy. I employ Bayesian structural VARs to extract the long-horizon shocks to the natural rate and inflation embedded in monetary aggregates. I use these shocks to compute the real natural rate of interest, long-horizon trend inflation rate, and subsequent inflation forecasts. In line with the literature, I document a sizable, common decline in the natural rate of interest across several advanced economies since the 1990s. For example, model estimates indicate that the natural rate in the Euro area fell from slightly below 2 percent to near negative 1 percent over the last three decades, remaining below zero since the global financial crisis. The Swiss real natural rate followed a remarkably similar pattern, declining from below 2 percent to about negative 1 percent, though the timing for transition into negative territory occurred after the crisis rather then preceding it. Individual country estimates display a substantial amount of co-movement over time, suggesting that global factors have played an important role in shaping the long-term trend in the natural rates of interest. The estimated long-horizon trend closely tracks actual inflation, demonstrating that the model accurately captures major macroeconomic turning points across the Euro area, Switzerland, the UK, and other economies.

Measuring Inflationary Pressures in Turkey during the Transition to Inflation Targeting (with Diana N. Weymark)

This study provides a detailed quantitative analysis of a transition to inflation targeting with a focus on the role of expectations. I investigate the impact of the Turkish central bank’s inflation reduction programs on inflation in Turkey from 1996 to 2005. Over this period there was a transition from non-targeting to semi-formal targeting, and then, finally, to full-fledged inflation targeting. In order to analyze the effectiveness of Turkish monetary policy quantitatively, a structural model of the Turkish economy that allows for structural breaks is estimated under the alternative assumptions of rational expectations and adaptive learning. Using these estimates, counterfactual experiments are conducted to obtain ex ante and ex post inflation pressure measures which characterize, respectively, the pre-policy and post-policy inflationary environment. To evaluate the impact of the central bank’s disinflation program on its credibility, I introduce an index of monetary policy credibility that is new to the literature. The inflation pressure indices indicate that there was no significant difference between the inflationary environments in the 2002-2005 period as compared to the 1996-2001 period. However, the monetary policy effectiveness index shows that the semi-formal inflation targeting program that was implemented from 2002-2005 was considerably more successful in reducing inflation than the policies in the previous period had been. Surprisingly, the index of monetary policy credibility suggests that the improvement in inflation control was not accompanied by a significant improvement in the central bank’s credibility. Find more details here: https://dx.doi.org/10.2139/ssrn.5345573 

Exchange Market Pressure under Reserve Options Mechanism (with Diana N. Weymark)

This study develops an analytical model to obtain an index for exchange market pressure in a monetary system with Reserve Options Mechanism (ROM), a macro prudential policy tool introduced by the Turkish Central Bank aiming to reduce the adverse effects of short term capital flows and exchange rate volatility on macroeconomic and financial stability. Our model-consistent exchange market pressure index is derived using a small open economy with rational expectations where we adopt a general, model-independent definition of exchange market pressure and follow two-step methodology proposed in Weymark (1995, 1998). We undertake counter-factual experiments to measure and evaluate exchange market pressure index for Turkish economy over the periods of 2005 to 2015. We show that exchange market pressure is inversely related to the proportion of banks utilizing the ROM facility, the size of Reserve Options Ratio, and Reserve Options Coefficients. We provide empirical evidence that exchange market pressure is significantly reduced both in size and volatility terms during the period while Reserve Options Mechanism is in operation. Under Reserve Options Mechanism commercial banks are allowed to keep a certain percentage of their Turkish Lira reserve requirements in USD, Euro, and/or gold. Reserve Options Mechanism consists two principal elements: reserve option ratio (ROR) and reserve option coefficients (ROCs) which are both set by the central bank. The upper limit for the proportion of domestic currency required reserves that is allowed to be held in foreign currency (FX) and gold is governed by reserve option ratio (ROR). The amount of FX and gold that can be held against per domestic currency required reserves is called the reserve option coefficient (ROC). Find more details here: https://dx.doi.org/10.2139/ssrn.5345594 

You can find out more about Reserve Options Mechanism and how it works in the CBRT Bulletin 25 (December 2012).

Money multiplier under Reserve Options Mechanism (with H. Göcen and S. Duran)

This paper introduces a generalized money (M2) multiplier formula to the literature for a monetary system with Reserve Option Mechanism (ROM). Various features of the proposed multiplier are then explored using monthly Turkish data during the decade 2005 to 2015. We report a step increase in the magnitude and a slight upward adjustment in the long-run trend of the multiplier with the adoption of ROM. We provide evidence for substantial change in the seasonal pattern of the multiplier, cash ratio, required and excess reserves under ROM. We show that money (M2) multiplier is less volatile in a monetary system with ROM and discuss the subsequent stabilizing influence of more predictable multiplier on the foreign exchange market. Find more details here: https://dx.doi.org/10.2139/ssrn.2614431

Do stock returns provide a good hedge against inflation? An empirical assessment using Turkish data during periods of structural change

The generalized Fisher hypothesis, when applied to assets or common stocks, suggests that there is a positive relationship between nominal stock returns and expected inflation. This study assesses this assertion during periods of structural change. In this paper, I compiled a panel of firm-level data covering a broad range of industries along with Turkish common stock market index values for a long period from 1986 to 2013. Over this period, the Turkish economy went through distinct inflation reduction programs from non-targeting to semi-formal targeting, and finally to full-fledged inflation targeting. My aim for studying such distinct periods is to consider the fact that expectations of inflation may behave quite differently under different monetary regimes. I show that no matter if the data is at aggregate or dis-aggregate levels, stock returns and ex-post inflationary expectations have a negative association. Based on ex-ante inflationary expectations, the relationship between stock returns and inflation expectations relationship confirms the Fisher hypothesis. Furthermore, conducting industry level analysis reveals significant sectoral differences where holding stocks of manufacturing industry firms provide for about 15% better hedge against inflation in comparison to that of service industry firms. This finding suggests that a portfolio manager should hold the stocks of manufacturing industry firms more intensively in her portfolio to increase real returns. Find more details here: http://dx.doi.org/10.1016/j.iref.2016.06.002