Research

Abstract: We conducted a survey of Turkish firms, using randomized treatments to provide varied information about inflation in a high-inflation environment. By matching the survey data with administrative firm-level data on employment, sales, credit, and foreign exchange transactions, we explore the impact of exogenous variations in inflation expectations on firms' behavior, borrowing decisions, and expectations. Our findings are summarized in seven facts: (i) information treatments are effective at generating exogenous variation in inflation expectations, even when inflation is high; (ii) the pass-through to firms' own price, wage, and cost expectations is strong, reaching up to 60%; (iii) firms adopt a supply-side interpretation of inflation—lower inflation expectations make them more optimistic; (iv) firms with lower inflation expectations decrease credit demand by approximately 3% for a 1 percentage point decline in expected inflation, shifting from long-term to short-term loans to avoid higher perceived costs; (v) they dollarize their liabilities by increasing their share of FX-denominated debt; (vi) they de-dollarize their assets by decreasing their net foreign currency holdings; and (vii) they increase their real activity, leading to higher employment and sales, and lower inventory.

Abstract:  This paper examines how monetary policy committee announcements and inflation surprises affect Turkish firms' inflation expectations and FX management decisions during the 2015–2024 period—a time characterized by both relatively stable and highly volatile inflation. Using survey data, we define monetary policy (inflation) surprises as the unexpected component of interest rate (inflation) forecasts measured within a narrow window around policy announcements. First, we show that firms' aggregate inflation expectations change significantly in response to monetary policy shocks, but their response is highly state-dependent: In relatively stable inflation environments, firms react in line with standard theory, anticipating a decline in prices while becoming pessimistic about the economic outlook. By contrast, in volatile settings, firms adopt a supply-side interpretation, revising their expectations upward amid pessimism. Second, inflation surprises increase inflation expectations and heighten pessimism regardless of the state, providing additional evidence for the supply-side view. Third, a positive inflation surprise induces an increase in FX holdings—reflecting concerns about potential currency depreciation—whereas an unexpected policy rate hike prompts firms to reduce FX positions in anticipation of currency appreciation. Our findings demonstrate that in a high-inflation environment, firms are especially attentive to macroeconomic developments, revising their inflation expectations and adjusting their financial strategies accordingly. These results underscore the importance of monetary policy communication and inflation news in shaping firm-level decisions, particularly when inflation is elevated and volatile.

Abstract:  This paper leverages a rare quasi-experiment—the unexpected September 2021 interest rate cut by the Central Bank of the Republic of Türkiye—to examine how inflation expectations shape firm behavior in a high-inflation environment. Drawing on a rich dataset that combines monthly survey responses with administrative records, we exploit the heterogeneous revisions in firms’ inflation expectations triggered by the policy shock. Firms that significantly increased their inflation forecasts (treated) subsequently became more pessimistic about economic conditions, reduced employment, and curbed domestic sales. At the same time, they strategically raised procurement, acquired more foreign currency assets, and boosted borrowing in local currency—even at higher costs—in anticipation of debt erosion. These patterns suggest that firms’ heightened inflation expectations drive both defensive and opportunistic behaviors, ranging from hedging against currency depreciation to locking in lower financing costs. Overall, the findings highlight the critical role of inflation expectations in guiding firm-level decisions and underscore the importance of policy credibility in volatile macroeconomic settings.

Abstract: We document hand-to-mouth (HtM) ratios for European countries using the HFCS dataset and assess their role in monetary policy transmission. Using ECB monetary shocks and panel local projections, we find that countries with higher HtM ratios have a less pronounced response to monetary policy shocks compared to those with lower HtM ratios. This aligns with the predictions of heterogeneous agent New Keynesian models with both wage and price rigidity. When wages are stickier than prices, real wages for HtM agents may decline despite interest rate cuts, which hinders the demand boost typically expected from the New Keynesian Cross. Consequently, monetary policy is less effective in stimulating aggregate demand in countries with higher HtM ratios.

Abstract: This study investigates the elasticity of credit demand and examines howfirm-level credit supply shocks influence borrowing costs and, in turn, affect key firm outcomes in Türkiye. Leveraging a comprehensive administrative dataset at the firm-bank level, we estimate the interest rate elasticity of credit demand to be approximately –2, indicating a high sensitivity of borrowing to cost changes. We then analyze how exogenous variation in borrowing costs affects firm-level outcomes such as sales, investment, employment, and default probability. Our results show that a 1 percentage point increase in interest rates reduces investment by 0.49 percent, lowers employment by 0.36 percent, and raises the probability of firm exit by 0.18 percentage points. These findings highlight the critical role of borrowing costs in shaping firm behavior, with important implications for performance and survival.

Abstract:  Expectations of households, firms, and market participants differ significantly, with particularly wide dispersion during volatile periods. We examine how macroeconomic news impacts the inflation expectations of these groups. Our findings reveal that households’ and firms’ inflation expectations increase in response to a positive monetary policy (tightening) shock, whereas professionals’ expectations decline. This divergence arises from fundamentally different interpretations of economic dynamics: households and firms view monetary tightening as a signal of worsening economic conditions—such as rising costs, weaker supply capacity, and potential production disruptions—leading them to expect higher inflation. As a result, they associate tightening with higher inflation. In contrast, professionals adhere to a demand-driven perspective, interpreting monetary tightening as a mechanism to reduce aggregate demand and thus lower inflation, consistent with standard economic theory. This pattern is further confirmed by how the three groups respond to unexpected inflation news (inflation surprises). These findings help explain the persistent disagreement in inflation expectations across households, firms, and professional forecasters, particularly during periods of economic uncertainty.

Abstract:  This study examines the labor market effects of the devestating February 2023 Kahramanmaraş earthquakes in southeastern Türkiye. Drawing on rich administrative data that link firm-level financial statements with matched employer–employee records, and allow us to follow individuals for two years after the disaster, we apply a difference-in-differences strategy complemented by an event-study design to identify causal impacts. The results indicate a 2.5 percentage point increase in labor market exits, a 3 percentage point rise in prolonged unemployment, a 2 percentage point increase in inter-provincial job transitions, and a 2.6 percent decline in annual wage growth. Labor market impacts vary systematically across worker, firm, and sectoral characteristics, and intensify with local earthquake severity. Losses were more pronounced among workers in smaller firms, lower-wage jobs, women, and less-experienced individuals. In contrast, construction workers and inter-provincial movers experienced relative gains. We also document sharper employment and wage declines among workers in high-leverage firms, rural areas, and sectors more exposed to post-disaster demand contractions, highlighting key mechanisms underlying differential labor market resilience. 

Abstract: This paper investigates how fuel price fluctuations shape inflation expectations and economic decisions across households, firms, and market participants. Using high-frequency administrative and survey data from Türkiye, we identify consistent stagflationary effects of fuel price increases. A 1% rise in fuel prices raises households’ 12-month-ahead CPI expectations by about 0.35%, with stronger effects among low-income groups (0.37%) than high-income ones (0.28%). Professional forecasters revise inflation expectations by 0.36% at the 12-month horizon, attenuating to 0.18% at five years, suggesting partial anchoring; financial-sector respondents extrapolate shocks more persistently than real-sector counterparts. For firms, CPI inflation expectations increase by 0.38% per 1% fuel price rise, with an additional 0.04\% elasticity in energy-intensive industries. These belief shifts translate into real effects: firms reduce sales, purchases, and employment while expanding supplier networks. Our results underscore the salience of fuel prices—and oil more broadly—as uncertain global signals that amplify stagflationary trade-offs, complicating the stabilization of expectations in energy-importing economies.

Abstract: We show that locally unusual weather leaves a distinct imprint on prices, expectations, real activity, and credit. Linking the Business Tendency Survey (BTS) and the Consumer Tendency Survey (CTS) to province–day records from the Turkish State Meteorological Service, we build province–month anomaly measures and trace their effects in Türkiye, 2015–2024. A one–standard-deviation positive temperature anomaly raises near-term food CPI inflation for several months (peaking around months 4–6) before mean-reverting. This salient price signal maps into beliefs: households’ 12-month CPI expectations rise by about 1.5%, with larger revisions for rural, female, and financially constrained respondents. Households also report weaker income prospects, a darker macro outlook, lower willingness to buy durables, and higher unemployment concerns; effects are larger for rural, female, and lower-income respondents. On the food sector firm side, 12-month CPI beliefs increase by about 0.6%, unit-cost expectations rise, and sales expectations and overall business conditions deteriorate, with stronger responses among SMEs and highly leveraged firms. Beyond prices and beliefs, real outcomes soften at monthly horizons: domestic sales fall by about 0.8%, exports by 1.2%, total purchases by 0.6%, and employment by 0.4%, with larger contractions for SMEs and high-leverage firms. Credit-registry evidence shows an access-amplified working-capital response: total outstanding credit increases by about 1.7%, driven by short-term balances (+3.6%) alongside a decline in long-term balances (1.0%), implying pronounced maturity shortening (strongest for borrowers with better bank access, though constrained firms also tilt short). Taken together, transient but salient weather shocks raise expected inflation while depressing perceived and realized conditions and shortening debt maturity, temporarily steepening the monetary-policy trade-off and highlighting the value of climate-aware communication and adaptation policies that dampen pass-through to costs, activity, credit, and beliefs.

Abstract: This paper tests whether credible public signals can shape firms’ beliefs and near-term outlook. We conduct a randomized information intervention that assigns firms to one of four information treatments—professional 12-month CPI forecasts, the CBRT’s current-year projection, the next-year projection, or the medium-term inflation target—or to a control group. Using a compact three-point elicitation (min–mode–max) mapped to a triangular posterior, we measure both the level and dispersion of inflation expectations and complement this with survey-based indices of uncertainty, forecasting difficulty, and business sentiment. The communication treatments significantly compress dispersion in inflation expectations, reduce firm-level uncertainty, and lower self-reported forecasting difficulty, with effects persisting for up to three months before attenuating. Consistent with precautionary behavior under uncertainty, reduced ambiguity is accompanied by an improvement in economic sentiment. Cross-sectionally, higher perceived inflation uncertainty is associated with weaker sales and employment plans, tighter anticipated financial conditions, and higher wage, cost, and price expectations. Taken together, the results show that credible guidance can meaningfully anchor firms’ beliefs and improve sentiment, but that effects decay without reinforcement. Effective communication therefore requires periodic, state-contingent updates coordinated across reports, speeches, and data releases.

Abstract: This paper examines how foreign exchange (FX) shocks affect firm-level outcomes in a high inflation environment, emphasizing the role of working capital constraints and the credit multiplier channel. Using rich administrative data from Türkiye, we construct a novel empirical strategy based on firm-specific seasonality in profitability. We define each firm’s “main quarter” as its most profitable period and investigate whether FX shocks exert stronger effects when initiated during these quarters. Our results show that FX shocks coinciding with the main quarter lead to significantly larger contractions in working capital components—trade credit, trade debts, and inventories—as well as declines in credit usage, particularly for financially constrained, import-dependent, and small firms. Real outcomes such as employment, sales, and production also deteriorate sharply. Sectoral analysis highlights that construction and service firms are especially vulnerable. The evidence maps tightly to cash-flow-based borrowing constraints and establishes a working-capital credit multiplier. Policy implications follow directly: state-contingent, seasonal trade-finance backstops, receivables facilities, maturity-extension incentives, and targeted macroprudential limits on FX mismatch can materially damp amplification when depreciations coincide with peak liquidity needs.

Abstract: This paper examines the high-frequency impact of oil price shocks on firms' inflation expectations and subsequent credit demand. Exploiting city-level variation in retail fuel pump prices within a 5-day window, we identify the immediate effect on firms' expectations. Our findings indicate a pass-through of about 30\%: a 1 percent increase in local oil prices leads to a 0.3 percentage point rise in firms' one-year-ahead inflation expectations. Building on this, we analyze the consequent shifts in corporate credit behavior following oil supply shocks: a 1 percent increase in fuel prices leads to a 0.5 percent rise in short-term borrowing and a 0.5 percent decline in long-term borrowing, as higher operating costs increase working-capital needs while a weaker macroeconomic outlook reduces planned investment. The net effect is a maturity reallocation rather than a large change in total borrowing. The results document a dual channel through which oil shocks shape firms’ beliefs and create divergent shifts in short- versus long-term corporate credit demand.

Abstract: This study investigates the impact of exchange rate fluctuations on Türkiye's export performance, emphasizing firm-level heterogeneity and sectoral dynamics. Utilizing a comprehensive administrative dataset spanning 2009–2023, we analyze the nuanced effects of real exchange rate movements on export value, volume, and prices through a top-to-bottom analytical framework. The findings reveal that currency appreciation significantly reduces export competitiveness, primarily through declines in export volume, with limited exchange rate pass-through to prices. Larger and more productive firms exhibit resilience to currency appreciation, leveraging economies of scale, pricing flexibility, and diversified operations. In contrast, small and medium-sized enterprises (SMEs) and financially constrained firms face pronounced challenges, including limited capacity to adjust prices and heightened vulnerability to external shocks. Manufacturing firms are less sensitive to exchange rate changes, benefiting from higher value-added production and sectoral advantages. These findings provide critical insights into the interplay between currency dynamics, firm characteristics, and export behavior.

Abstract: This study examines the impact of monetary policy surprises on credit usage, borrowing costs, default probabilities, and foreign currency trading behavior, emphasizing key differences across firms based on size, leverage, and export orientation. The findings reveal that small and medium-sized enterprises (SMEs) are more vulnerable to monetary shocks than larger firms, experiencing sharper declines in borrowing, higher borrowing costs, and greater increases in default risk. Additionally, highly leveraged firms exhibit greater sensitivity compared to those with lower leverage. Export-oriented firms, however, demonstrate resilience to monetary shocks, leveraging access to foreign exchange borrowing and diversified revenue streams to mitigate adverse effects. Sectoral analysis identifies the construction sector as the most responsive to monetary policy changes, followed by the services sector. Additionally, moderate monetary policy surprises affect firms through conventional channels, while larger surprises trigger information effects, where firms respond to perceived signals about the central bank's economic outlook. These findings underscore significant variations in firms' reactions to monetary policy shifts, shaped by their size, financial structure, export orientation, and sectoral characteristics.

Abstract: This paper analyzes how unexpected oil supply shocks shape firms' inflation expectations and real activity using a dataset of Turkish manufacturing firms. At the aggregate level, oil supply shocks significantly increase both actual CPI inflation and firms’ average inflation expectations, with effects persisting for up to 15 months. Our firm-level analysis reveals substantial heterogeneity: smaller and highly leveraged firms respond more strongly to oil shocks, significantly raising their expectations for inflation, own prices, and unit costs compared to larger, financially robust firms. Furthermore, these shocks worsen firms’ business outlook and lead to tangible reductions in capacity utilization. Leveraging administrative firm-to-firm transaction data, we show that oil shocks also reduce firms’ sales, purchases, and the number of trading partners—particularly among financially constrained firms—highlighting real dislocations that propagate through production networks. In contrast, carbon price shocks and global temperature changes have no significant impact, consistent with the absence of a binding carbon pricing mechanism in Türkiye during the study period. Our findings highlight oil supply shocks as a crucial driver of firm-level expectations and real activity, emphasizing the importance of incorporating energy-cost dynamics into inflation-targeting frameworks.

Abstract: In this paper, I explore the spillover effects of frontier firms on other firms in Türkiye, using a detailed administrative dataset with firm-level data on balance sheets, inter-firm transactions, and employment. I review key production function estimators, evaluate their assumptions and performance using a large dataset of Turkish firms, and use productivity estimates to identify frontier firms and assess their influence on laggard firms' performance. Additionally, I contribute to the empirical literature by exploring the spillover and network effects of frontier firms on laggard firms, as well as examining the productivity convergence of laggard firms to frontier firms. The analysis reveals three key findings: (i) Frontier firms generate positive spillover effects within sectors, which enhance sales, employment, exports, and asset growth among laggard firms; (ii) detailed firm-to-firm invoice data reveals that a higher share of frontier firms in a firm's network significantly boosts investment, net sales, and productivity growth; and (iii) laggard firms show faster productivity growth, with substantial variation across firm types and industries. 

Akarsu, O. (2025). Total factor productivity and spillover effects: Frontier and laggard firms dynamics. Central Bank Review, 25(3):100211.

https://doi.org/10.1016/j.cbrev.2025.100211 

Abstract: We explore the spillover impact of zombie firms in Turkey 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. At the same time, healthy firms in zombie-dense networks face reduced credit access. (ii) Zombie firms, which are on average less productive than 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 linkages, our study causally establishes that greater upstream or downstream exposure to zombie firms leads to reduced sales, investment, and employment growth compared to firms without zombie connections. Increased exposure to zombie firms significantly reduces markups, value-added, productivity, and EBIT margins due to cascading effects on production technology, shifting it toward lower value-added. Additionally, a higher share of zombies in the upstream sector reduces input costs for firms due to excess production.

Akarsu, O., Aktuğ, E., & Torun, H. (2025). Zombie firms in network: Congestion and evergreening. Economic Modelling, 151, 107217. https://doi.org/10.1016/j.econmod.2025.107217 

Abstract: We document the demand- and supply-driven components of inflation in Türkiye by following the decomposition method of Shapiro (J Money Credit Bank, 2024). The results suggest that the recent surge in inflation, which began with the COVID-19 pandemic and deviated significantly from global inflation rates, reaching as high as 80%, was initially driven by supply factors. As monetary policy loosened, demand-driven inflation also increased; however, throughout the post-COVID period, supply-driven inflation consistently exceeded the demand-driven component in this high-inflation environment. Consistent with theory, oil supply and exchange-rate shocks increased the supply-driven inflation, while monetary policy tightening reduced the demand-driven inflation. This decomposition can potentially serve as a useful real-time tracker for policymakers.

Akarsu, O., & Aktuğ, E. (2025). Decomposing supply- and demand-driven inflation in Turkey. Empirical Economics.

Abstract: Export credits are used extensively throughout the world to temper the negative effects of financial constraints on exports. In this paper, we focus on a particular form of subsidized export credits, namely export rediscount credit scheme implemented by the Central Bank of the Republic of Türkiye. For this purpose, we create a detailed firm level data set matching monthly firm level export data with credit and financial statement data. Our results show that exports of firms that use rediscount credit increase significantly in half a year horizon and there is a positive relation between the amount of credit and export growth. Moreover, the relation between the credit amount and export volume is not linear; the correlation starts to decline after a certain point. Our results also reveal heterogeneity with respect to size; exports of small firms increase more after using rediscount credits.

Akarsu, O., Aldan, A., & Torun, H. (2024). Heterogeneity and nonlinearity in the relationship between rediscount credits and firm exports. Borsa Istanbul Review, 24(6), 1316–1323.