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CENTRAL BANK OF THE REPUBLIC OF TURKEY WORKING PAPER NO: 11/04 The Interaction Between Monetary and Fiscal Policies in Turkey: An Estimated New Keynesian DSGE Model January 2011 Cem ÇEBİ © Central Bank of the Republic of Turkey 2011 Address: Central Bank of the Republic of Turkey Head Office Research and Monetary Policy Department İstiklal Caddesi No: 10 Ulus, 06100 Ankara, Turkey Phone: +90 312 507 54 02 Facsimile: +90 312 507 57 33 The views expressed in this working paper are those of the author(s) and do not necessarily represent the official views of the Central Bank of the Republic of Turkey. The Working Paper Series are externally refereed. The refereeing process is managed by the Research and Monetary Policy Department. The Interaction Between Monetary and Fiscal Policies in Turkey: An Estimated New Keynesian DSGE Model Cem Çebiy Central Bank of the Republic of Turkey Abstract This paper estimates a New Keynesian open economy DSGE model for Turkey by using Bayesian estimation technique for the period of 2002:q1 - 2009:q3. It studies …scal and monetary policy interactions and their role in stabilisation of the economy using a small-scale model following the methodology outlined in Lubik and Schorfheide (2007). The general features of the model can be summarised as follows: Calvo style nominal price rigidities, perfect exchange rate pass-through, complete international asset markets, rule of thumb price setters and distortionary taxation. The parameter estimates show that the monetary authority reacts to in‡ation but only weakly reacts to the output gap. The degree of interest rate smoothing is high. Fiscal policy has contributed to the debt stabilization but there is no evidence on active …scal stabilization of output gap. Key Words: Monetary and Fiscal Policy, Macroeconomic Stabilisation, Bayesian Estimation JEL Reference Number: E52, E61, E63 I would like to thank Tatiana Kirsanova, Ümit Özlale and the anonymous referee for useful comments and suggestions. I would like to also thank participants of seminar at Central Bank of the Republic of Turkey for comments. The paper represents the views and analysis of the author and should not be thought to represent those of Central Bank of the Republic of Turkey. Any errors are mine. y Address: Central Bank of the Republic of Turkey, Head O¢ ce, Istiklal Caddesi, 10, Post Code: 06100, Ulus/Ankara/TURKEY; e-mail: [email protected] 1 1 Introduction After two subsequent …nancial crises Turkey started year 2001 with budget de…cit of 11.9% of GDP, and a double-digit in‡ation rate of 68.5% per annum was reached by the end of the year. The share of net stock of public debt in the GDP was 66.3%, and most of the debt was short-term. Remarkably, by the end of 2009 in‡ation fell to 6.5% per annum and by the end of 2008 the de…cit to GDP ratio was reduced to just 1.8%. Arguably, the stabilisation has to be attributed to the “Strengthening the Turkish Economy” programme that took o¤ in 2001, after the Central Bank of Turkey gained formal independence. This programme was conducted under the ‡oating exchange rate and an informal (implicit) in‡ation targeting regime, supported by both monetary and …scal policies. In January 2006, after the initial success of the stabilization programme, Turkey introduced an explicit in‡ation target. This paper assesses the extent to which the observed stabilization in Turkey can be attributed to monetary and …scal policy mix in the post-crisis period. Turkey is one of the European Union candidate countries, and the success of the stabilization makes further integration of Turkey with European countries more realistic. As such integration is impossible without convergence of main economic mechanisms and policies, it is imperative to investigate similarities and di¤erences of transmission mechanisms in Turkey with those in the EU countries. There is virtually no empirical research on policy transmission mechanisms in Turkey that uses (small-scale) internally consistent models. The (only) exception is Ortiz et al (2009), but the model employed there does not include …scal policy and can be miss-speci…ed in an important way. We use a standard small-scale open economy New Keynesian model, adopted from Lubik and Schorfheide (2007) but modi…ed to include e¤ects of …scal policy1 . The model assumes Calvo-style nominal price rigidities but with rule-of-thumb price-setters, perfect exchange rate pass-through, complete international asset markets. Importantly, …scal policy has to satisfy an important intertemporal solvency constraint. Lubik and Schorfheide (2007) have demonstrated that despite simplicity and potential misspeci…cations small DSGE models, such as one we use here, can capture robust empirical relationships. Because the main aim of this paper is to estimate parameters of policy interactions, we keep the model of the economy simple, and the model equations essentially work as identifying restrictions for policy reactions. A microfounded model allows us to derive theory-based monetary and …scal policy rules. We use both instruments of …scal policy, government spending and labour income taxes, and assume joint rules-based monetary-…scal stabilisation policy. The adopted empirical approach, the Bayesian estimation, is system-based and allows us to account for important e¤ects of government solvency constraint in identi…cation of …scal policy. Our analysis demonstrates that over the post-crisis period monetary policy in Turkey reacted to in‡ation aggressively. There is a literature on the issue that high level of debt stock prevents the 1 The model is a modi…ed version of Gali and Monacelli (2005) and includes …scal policy as in Fragetta and Kirsanova (2010). 1 Central Banks to implement an independent monetary policy. This is because if the Central Banks increase policy rates, this would also increase debt burden of the budget and so jeopardise debt sustainability2 . In spite of the fact that the concerns about the sustainability of domestic debt stock maintained in the early 2000s, they have gradually alleviated over time thanks to implementation of strong …scal discipline. Hence, this situation has caused the increase in the e¢ ciency of the monetary transmission mechanism in Turkey3 . There is also a weak evidence of output gap stabilisation. We …nd that …scal policy played an important role in debt stabilisation, but we did not …nd any evidence on active stabilisation of output gap by …scal means. Overall, we …nd that monetary and …scal policy mix in Turkey in 2001-2009 was similar to the one in many developed countries, as reported in Gali and Perotti (2003). This paper is structured in the following way. The New Keynesian open economy DSGE model is outlined in section 2. Section 3 discusses the estimation methodology, data and the choice of priors. Section 4 presents the empirical results. Finally, section 5 concludes. 2 The Model 2.1 The Behaviour of the Private Sector A small open economy is inhabited by a representative, in…nitely lived household who seeks to maximise the expected present discounted value of the lifetime utility subject to intertemporal budget constraint: ! 1 X Ct1 G1t Nt1+' t E0 + (1) 1 1 1+' t=0 where 2 (0; 1) is the household discount factor, is inverse intertemporal elasticity of substitution in consumption, ' is inverse labour supply elasticity with respect to real wage and is a relative weight on consumption of public goods. The aggregate variables in the utility function, Ct , Gt and Nt are private consumption, government spending and labour supplied (hours of work), respectively. Household’s intertemporal budget constraint is standard and can be written as follows: Pt Ct + Et fQt;t+1 Dt+1 g + T Dt + (1 t ) Wt Nt (2) where Qt;t+1 = (1=1 + rt ) is one-period ahead stochastic discount factor, rt is nominal interest rate, T and t represent constant lump-sum taxes and income tax rate, respectively. Wt is nominal wage, Dt is nominal portfolio, Pt is consumer price index (CPI) and Ct is composite consumption index which consists of index of domestically produced goods (CH;t ) and index of imported goods (CF;t ). These goods are produced by monopolistically competitive …rms. 2 There are some studies which stresses the importance of …scal dominance in the implementation of the monetary policy in Turkey. See Kara (2008) and Ersel & Özatay (2008) for further information about the Turkish experience with implicit in‡ation targeting regime. 3 See Karasoy, Kunter & Us (2005) and Aktaş, Kaya & Özlale (2010) for further information about the importance of …scal stance and the associated risk premium in monetary transmission mechanism in Turkey. 2 A forward looking open economy IS curve, which is found in Gali & Monacelli (2005, 2008), is described in terms of output instead of consumption by using national income identity and risk sharing condition. A log-linearised IS curve in terms of deviations from steady state can be expressed as follows: n^ o n ^ o ^ y t = E t y t+1 Et g t+1 + ($ where (1 )+ $ and $ + (1 1) ct c )( goods produced in di¤erent foreign countries. gt = ln (1 = yt Et n^ H;t+1 o (3) > 0 denotes elasticity of sub- measures the share of domestic consumption allo- cated to imported goods (degree of openness) and put y t = ln Yt =Y ; ^ rt 1) : Parameter stitution between domestic and foreign goods, ^ 1 ^ 1) ( re‡ects elasticity of substitution between the Endogenous vaiables are de…ned as follows: out- y, where y denotes steady state value of yt , government spending Gt =Yt ), nominal interest rate rt and domestic in‡ation H;t = ln (PH;t =PH;t 1 ). I use domestic in‡ation instead of CPI in‡ation by substituting out import component of CPI in‡ation with the help of risk sharing condition. Domestic price, PH;t ; is represented by GDP de‡ator and ct = yt gt denotes exogenous world consumption (output), which follows AR(1) process. In this study, all foreign variables are indexed with an asterisk, ( ). I obtain a forward looking open economy IS curve in the gap form as follows:4 n~ o ~ y t = Et y t+1 ~ ^ ^n ~ Et n ~ g t+1 o 1 ~ rt ^n ^ Et n~ ~ H;t+1 o (4) ^ ~ where y t = y t y t , rt = rt rt : We can write g t+1 = g t+1 and 0:5 Finally, ^n ^n y t and rt denote H;t+1 = ^ ^ H;t+1 since g n t+1 = ^ n H;t+1 = natural level of output and of nominal interest rate, respectively. These are the equilibrium level of output and interest rates in absence of nominal rigidities, which can be written in the following way:6 ^n yt = ^n rt = (1 + ') ^ at ( + ') ^n Et y t+1 ( ( )^ c + ') t ^n yt + (5) ($ 1) ( ^ c 1) ct (6) where at is log of technology process, At : 4 Di¤erent from Christo¤el, Coenen & Warne (2008), who use a trend-based output gap measure, we use another output gap measure calculated as a di¤erence between actual ouput, which is demeaned, detrended and seasonally adjusted, and ‡exible price level (natural rate) of output by following e.g. Smets & Wouters (2003). 5 We assume that government spending and tax are zero in ‡exible price economy, which means that there is no budget de…cit or surplus under the ‡exible price equilibrium. See Fragetta & Kirsanova (2010) for the assumption related to natural level of government spending. 6 It is possible to also show natural level of interest rate in terms of only productivity and world output shocks if we ^n substitute out the potential output: rt = (1+')( a ( +') 1) ^ at + 3 ' ($ 1) ( +') ( ^ c 1) ct 2.2 The Firm Behaviour and The Price Setting There is a continuum of identical monopolistically …rms in the economy. Each …rms produces a di¤erentiated good using linear technology. So j t h …rm’s production function can be written as follows: Yt (j) = At Nt (j) (7) Following Calvo (1983), we assume that a fraction 1 of the …rms can set a new price in each of them keeps its price unchanged.7 In other words, each period every period, hence, a fraction …rm may set a new price with probability 1 and this probability is independent of the time elapsed since the last price setting. Therefore, 1= (1 ) shows average duration that prices are …xed. Moreover, di¤erent from the standard Calvo framework we also include backward looking behaviour in price setting process by following Gali & Gertler (1999) in order to take into consideration in‡ation persistence. We assume that there are two types of …rm in the economy. While a fraction of 1 the price setters, who change their prices each period with probability 1 of , behave optimally as in standard Calvo model, when setting their prices, the remaining fraction ( ) prefer to reset their prices by taking into account backward looking (rule of thumb) behaviour.8 The price, pbH;t , which is chosen by rule of thumb price setters, can be written as in Gali & Gertler (1999): pbH;t = PH;t where PH;t 1 1 PH;t PH;t f = (PH;t 1 (8) 2 b PH;t 1 1) f (forward looking, PH;t 1) is the aggregate prices chosen in period t 1 by both optimizing 1 b and rule of thumb (backward looking, PH;t 1) price setters. Therefore, the rule of thumb price setters take into account past period in‡ation rate ( well as aggregate price PH;t occured in period t 1 H;t 1 = PH;t 1 =PH;t 2 ) as 1, when they reset their prices in period t. The existence of backward looking …rms besides forward looking …rms allows us to obtain a log-linearised open economy hybrid Phillips curve in terms of deviations from steady state as follows: n^ o ^ ^ b^ f = + E t H;t H;t 1 H;t+1 + mct + t ^ where b = cost and and + ') y t + (1 t ^n ^ mct = ( = (1 )) , ln (1 ^ yt f = gt + + (1 t =Yt ) (1 ^ )) t and = (1 )(1 )(1 ) + (1 (1 )) . is a log-linearized tax rate. t (9) (10) ^ mct denotes real marginal represents a cost push (mark-up) shock which we include in the Phillips curve by following, among others, Smets & Wouters (2003, 2007), Beetsma & Jensen (2004), Ireland (2004) and Fragetta & Kirsanova (2010). Following Smets & 7 Parameter measures the degree of price stickiness in the economy. Christiano, Eichenbaum & Evans (2005) take into account lagged dynamics in the Phillips curve. Assuming that a fraction 1 of the …rms can set a new price optimally in each period as in Calvo model, the remaining part (a fraction ) set their prices by using the previous period’s in‡ation rate. 8 4 Wouters (2003) and Fragetta & Kirsanova (2010) we assume that cost push shock is an independent and identically-distributed (i.i.d.) shock9 . According to equation (10), government spending and income tax as well as output gap directly a¤ect real marginal cost and hence they indirectly a¤ect in‡ation via equation (9)10 . The slope coe¢ cient of Phillips curve shows sensitivity of domestic in‡ation with respect to real marginal cost. In addition to current real marginal cost, future expected in‡ation and past in‡ation re‡ecting in‡ation inertia enter the current domestic in‡ation equation. b The structural reduced form parameters , f and are de…ned in terms of three deep parameters of the model, ; and : When the degree of backwardness, , is equal to zero, one can obtain a forward looking open economy Phillips curve, however, when is di¤erent from zero a hybrid Phillips curve is found. Another interesting feature depends on the value for discount factor, b sum of and f . When will be 1. Additionally, the total value of these components will be between = 0) and 1 (when = 1 the (when = 1): As stated in Amato & Laubach (2003), due to the fact that the value of discount factor is very close to 1, b f and can be interpreted as relative weights on past and expected future in‡ation, respectively. The more share of rule of thumb price setting …rms increases the more weight on past in‡ation (in‡ation inertia) raises. Moreover, an increase in the number of rule of thumb price setters and a high degree of price stickiness reduce the sensitivity of current domestic in‡ation to current real marginal cost. 2.3 The Policy 2.3.1 The Monetary Policy Rule Following Smets & Wouters (2003, 2007), we de…ne a simple Taylor-type interest rate rule based on in‡ation and output gap instead of assuming that monetary authority focus on minimising a loss function.11 ^ rt = ^n ^ r rt 1 rt 1 + (1 r) r ^ ^ H;t + ry y t ^n ^n + rt + "rt yt ^n where rt represents natural level of nominal interest rate and r (0 r (11) 1) is interest rate smoothing coe¢ cient and "rt is an i.i.d. interest rate shock, which can be interpreted as the non-systematic part of the monetary policy. Parameters r and ry show the Central Bank’s preference about in‡ation and output gap. Since the main aim of the Central Bank is to establish price stability, the parameter r should be higher than ry . This kind of monetary policy rule implies that Central Banks change 9 Ireland (2004) used a cost push shock, which follows AR(1) process, with a forward looking Phillips Curve. On the other hand, Smets & Wouters (2007) used a cost push shock, which follows ARMA(1,1) process, with a hybrid Phillips Curve for the US economy. They indicate that since in‡ation shows high-frequency ‡uctations, MA term is included in order to capture them. 10 Tax is a cost element for a …rm. An increase in income tax rate directly increases real wages which also a¤ects …rm’s real marginal cost. Therefore, an increase in real marginal cost is re‡ected in the price of product and so in‡ation. 11 Smets & Wouters (2003) include change in in‡ation and change in output gap, Smets & Wouters (2007) include change in output gap in addition to in‡ation and output gap itself in their monetary policy rules. 5 nominal interest rates in response to deviation of in‡ation from its steady state value and deviation of output from its natural level. Additionally, Central Banks also take into account past value of nominal interest rates (when r 6= 0) when they reset their current nominal interest rates. The high value for the degree of interest rate smoothing reduces the contemporary responsiveness of the nominal interest rates to in‡ation and output gap. 2.3.2 The Fiscal Policy Rules Following Muscatelli & Tirelli (2005) we consider a backward looking form for the …scal policy reaction functions by taking into account lagged responses of …scal policy to economic activity.12 We also assume smoothing of …scal instruments, as Favero & Monacelli (2005) and Forni, Monteforte & Sessa (2009). ^ gt = ^ = t ^ g gt Parameters ^ t 1 gy y t g ) + (1 and g ^n ^ 1+ 1 1 yt 1 yt yt + gb bt + 1 + ^n ^ y ^ 1 ^ b bt + g t (12) t: (13) denote the degree of …scal smoothing. Parameters gy and y demonstrate the sensitivities of government spending and tax to past value of output gap. Parameters gb and correspond to feedback coe¢ cients on unobservable debt stock and g t and t b are i.i.d. government spending and tax shocks, which represent the non-systematic component of discretionay …scal policy or discretionary exogenous deviations from the …scal rules. According to government spending and tax rules described above, the …scal authority has two objectives, namely output stabilisation and debt stabilisation. Depending on the degree of …scal smoothing the magnitude of the responsiveness of spending and tax with respect to debt and output gap changes. For example, the increase in the degree of …scal smoothing results in the decline in the sensitivity of the government spending and tax to output gap and debt. 2.3.3 The Government Solvency Constraint Finally, the model is completed by a …scal constraint. As in Kirsanova et al (2007) and Fragetta & Kirsanova (2010), a log-linearised government solvency constraint (…scal constraint) can be expressed 12 Muscatelli & Tirelli (2005) describe the …scal rules for government spending and tax as follows: ^ gt = ^ t ^ 1 gt 1 = '1 ^ ^ ^ 2 yt 1 ^ + ^ t 1 where g t and '2 y t ^ 1 3 bt ^ + '3 b t ^ ^ t represent government spending and tax, y t 6 1 denotes output gap and bt stands for debt. as: ^ 2 ^ 14 bt ^ where bt = ln (Bt =PH;t 1 ), ^ bt+1 = rt + H;t + (1 ) ^ ^ t yt + C B ^ gt ^ t 3 5 (14) Bt is nominal debt stock, B is the steady state debt to GDP ratio, C is steady state consumption to GDP ratio. As a result, an open economy New Keynesian DSGE model consists of a forward looking IS curve, a hybrid Phillips curve, monetary and …scal policy rules and a government solvency constraint. We have …ve observable variables, output, in‡ation, nominal interest rate, tax to GDP ratio and spending to GDP ratio. We treat domestic debt stock, natural level of output and of nominal interest rates as unobservable variables. Stochastic behaviour of the system is driven by six exogenous disturbances, namely productivity (technology) shock, world output shock, mark-up shock, interest rate shock, tax shock and spending shock. 3 Estimation Methodology 3.1 Econometric Methodology There are di¤erent methods to estimate and evaluate DSGE models in the literature. As stated in An & Schorfheide (2007), these techniques are summarised as calibration, generalized method of moments (GMM), full-information likelihood based estimation, Bayesian estimation and minumum distance estimation based on the distance between impulse response functions received from VAR and DSGE model. Following An & Schorfheide (2007) and Mancini-Gri¤oli (2007) I use the Bayesian estimation technique to estimate a linearised DSGE model.13 It gives us several advantages over the competing techniques. First, Bayesian estimation allows one to use a prior distribution that brings additional information in the estimation process. Moreover, as stated in Mancini-Gri¤oli (2007), including the priors in the estimation process helps identifying parameters of the model. Second, while the GMM estimation is based on a single equation, Bayesian approach is system based, which allows us to take bene…t from the advantages of the general equilibrium approach (Rabanal & RubioRamirez (2005)). Additionaly, the existence of government solvency constraint serves as an important identifying restriction in the model, and the need to take it into account prevents the use of a equationbased estimation.14 Third, a Bayesian approach shows better performance than GMM and maximum likelihood in small samples, see Rabanal & Rubio-Ramirez (2005). The estimation procedure is clearly explained in Koop (2003), An & Schorfheide (2007) and Mancini-Gri¤oli (2007) and consists of several steps. From the reduced form solution of the model I 13 An introduction to Bayesian Analysis can be found in Hamilton (1994) and Koop (2003). The presence of debt accumulation equation, which is potentially explosive, may impose strong restrictions on the values of the coe¢ cients of the …scal policy rules. Therefore, it is only a system-based approach can ensure su¢ cient identifying restrictions. 14 7 obtain a state space representation of the model where unobserved state variables are mapped into the observed data. I apply the Kalman …lter to the reduced form in order to calculate the likelihood function of the observed data. A numerical optimization of the likelihood function multiplied by the prior is used to obtain posterior modes. I then use a Metropolis-Hastings algorithm to generate a sample and approximate posterior distributions. I use the DYNARE toolbox for MATLAB. 3.2 Data I estimate the DSGE model over the period of 2002:q1 - 2009:q3 using …ve macroeconomic variables for the Turkish economy. These variables are real GDP, GDP de‡ator, nominal interest rates, government spending to GDP ratio and tax to GDP ratio. All the data are at quarterly frequencies. The data series on log of real GDP is detrended, demeaned and seasonally adjusted. The others are demeaned and seasonally adjusted where needed. Real GDP, GDP de‡ator and nominal interest rate series are obtained from the data delivery system of the Central Bank of Turkey.15 Fiscal variables are obtained from Public Accounts Bulletins of Ministry of Finance of Turkey.16 I use the overnight interbank money market interest rates (simple, annual), which closely follows the policy rates targeted by the Central Bank of Turkey, and is very close to the interest rate on threemonths government bonds. The annual home in‡ation rate in each quarter is calculated by taking into account the percentage change in the GDP de‡ator. Because the Turkish quarterly Public Sector Borrowing Requirement (PSBR) data are unavailable17 , we use the central government expenditures, excluding interest payments, and central government tax revenues as a proxy for …scal stance.18 3.3 Choice of Prior We specify prior distributions for each parameter as reported in Table 1. Parameters with compact support are assumed to follow beta distributions, parameters with restrictions on sign follow inverse gamma distributions and we use normal and gamma distributions for the remaining parameters. When deciding on prior means and standard deviations, we take into account that choosing a wide (concentrated) prior distribution for a parameter shows that we have low (great) con…dence in prior 15 http://evds.tcmb.gov.tr/yeni/cbt-uk.html See http://www.muhasebat.gov.tr/mbulten/2006_7meryone.php 17 PSBR covers central government budget, state economic enterprises, social security organizations, revolving funds, unemployment insurance fund, local administrations and other funds. 18 Turkey has started to publish monthly data on central government budget, which covers the general budget, the special budget and the regularity and supervisory institutions budget, since January 2006. Ministry of Finance of Turkey also published yearly data for the central government budget for the period of 2000 - 2005. In order to obtain quarterly data for the central government budget for the period of 2002 - 2005 we calculate the shares of quarterly primary expenditures in total expenditures and the shares of quarterly taxes in total taxes for each year by using general budget (on the base of 2007) …gures for 2004 and 2005 and consolidated budget (programme budget) …gures for 2002 and 2003. Then, we apply these quarterly ratios to the corresponding yearly central government budget …gures in order to get quarterly data. 16 8 information about that parameter. As in Lubik & Schorfheide (2007), it is assumed that all prior distributions are independent. Parameter ' r r ry g gy y gb b a y a y r g Description degree of price stickiness inverse elasticity of labor supply inverse elas. of subs. in cons. degree of interest rate smoothing Taylor rule coe¢ cient on in‡ation Taylor rule coe¤. on output gap degree of gov. spe. smoothing spe. coe¤. on past output gap degree of tax smoothing tax coe¤. on past output gap spending coe¢ cient on debt tax coe¢ cient on debt degree of backwardness AR coe¢ cient of technology AR coe¢ cient of world output st. dev. of technology innovation st. dev. of in‡ation innovation st. dev. of world cons. innovation st. dev. of interest rate innovation st. dev. of gov. spe. innovation st. dev. of tax innovation Density Beta Normal Normal Beta Gamma Gamma Beta Normal Beta Normal Normal Normal Beta Beta Beta Inv gamma Inv gamma Inv gamma Inv gamma Inv gamma Inv gamma Mean 0.5 2.0 3.0 0.5 1.5 0.4 0.5 0.0 0.5 0.0 -0.03 0.03 0.7 0.8 0.8 1.0 0.6 5.0 0.4 2.0 1.0 St.error 0.1 0.5 0.75 0.2 0.5 0.2 0.15 0.05 0.15 0.05 0.02 0.01 0.1 0.1 0.1 4.0 4.0 4.0 4.0 4.0 4.0 Table 1: Prior Distributions Some model paramaters were kept …xed in this study. For example, following the other studies in the literature, discount factor, , is determined as 0.99 and so the annual steady-state real interest rate is set to 4%. Following Lubik & Schorfheide (2007), the elasticity of substitution between foreign and domestic goods and elasticity of substitution between goods produced in di¤erent foreign countries are calibrated as 1. Additionally, the degree of openness (import share), , is set to 0.27 by taking into account the average value for import to GDP ratio in the period of 2002:q1 - 2009:q3. Similarly, steady state value for private consumption to GDP ratio is set to 0.7 by taking into consideration sample average of the estimation period. Finally, steady state value for domestic debt stock to annual GDP ratio is assumed 0.37 by taking into account sample average of the period of 2002 - 2008. Priors for the model parameters are generally chosen by taking into account the other studies in the literature. The standard deviations of the structural shocks have inverse gamma distribution with di¤erent prior means range between 0.4 to 5 and with a common degree of freedom equal to 4, re‡ecting the fact that there is little prior information about these parameters. I use fairly loose priors for the parameters of the monetary policy rule. Following Lubik & Schorfheide (2007) I give a gamma distribution with mean 1.5 and standard error 0.5 for the pa- 9 rameter related to weight on in‡ation, r ; in the monetary reaction function.19 In a related study of the Turkish economy, Ortiz et al (2009) selected relatively high prior mean as 2 and a very loose prior standard error as 1.5 for Taylor rule coe¢ cient on in‡ation for Turkey for two di¤erent periods, 1989:q2 - 1993:q4 and 1989:q2 - 1998:q1. Setting the prior mean for the interest rate feedback on output gap, ry ; to 0.4 with a prior standard deviation 0.2, allows the Central Bank to alter the interest rate only weakly in response to output gap. Ortiz et al (2009) chose prior mean the output feedback 0.25 with the same prior standard deviation 0.20. We chose the prior mean and standard error for the interest rate smoothing parameter, r; as 0.5 and 0.2, respectively. Similarly, Lubik & Schorfheide (2007) and Ortiz et al (2009) selected a prior mean as 0.5 and a prior standard deviation as 0.2 for Canada and Turkey, respectively. For …scal rules we chose prior mean as 0.50 and prior standard deviation as 0.15 for …scal smoothing parameters, g and , respectively. We chose zero prior mean with standard deviations as 0.05 for both government spending and tax coe¢ cients on past output gap, gy and y. By centering the distribution around zero we allow the data to tell us the direction of the …scal feedbacks on output gap (i.e. whether or not …scal policy is contractionary or expansionary). Following Fragetta & Kirsanova (2010) small values for prior means are used for …scal feedback parameters on debt stock (gb and b ). We use prior means of -0.03 and 0.03 for feedback parameters on debt stock in government spending and tax rules, respectively.20 We use beta distributions for the structural parameters in the hybrid Phillips Curve. The prior mean of Calvo parameter (degree of price stickiness), , in the price setting equation was set to 0.5, which implies that average length of a price contract is half a year.21 However, the standard error allows for variation between 4 - 10 months. Since Turkey has experienced high and chronic in‡ation for a long period, it is expected that …rms in Turkey try to modify their prices and wages more frequently than …rms in developed countries. We use beta distribution with mean 0.7 and standard deviation 0.1 for the share of …rms which follow the rule of thumb price-setting rules. The same chronic in‡ation can be a reason for strong past indexation.22 Following Fragetta & Kirsanova (2010) we choose 2 for the mean of the inverse elasticity of labor supply, ', and 3 for the mean of the inverse elasticity of substitution in consumption, errors are 0.5 for ' and 0.75 for . Standard .23 19 Lubik & Schorfheide (2007) chose 1.5 for prior mean and 0.5 for prior standard deviation for Taylor coe¢ cient on CPI in‡ation for Canada in their benchmark speci…cation. 20 It has been shown in Kirsanova & Wren-Lewis (2007) that the optimal level of …scal feedback is small. 21 For example, Fragetta & Kirsanova (2010) selected the prior mean for Calvo parameter as 0.65 for the UK and the US and 0.6 for Sweden. Smets & Wouters (2003) chose the mean of the Calvo parameters in the price and wage setting equations as 0.75 for the Euro area, implying that average duration of the contract is one year. 22 See Kad¬o¼ glu (2006). 23 These prior means correspond to 0.5 for elasticity of labor supply (1=') and 0.33 for elasticity of substitution in consumption (1= ). Lubik & Schorfheide (2007) and Ortiz et al (2009) chose 0.5 as a prior mean for elasticity of substitution in consumption for Canada and Turkey, respectively. Fragetta & Kirsanova (2010) chose the prior mean for ; 3, 2.5 and 5 for the UK, Sweden and the US, respectively. On the other hand, they chose the prior mean for '; 3.5 10 4 Estimation Results 4.1 Parameter Estimates Table 2 reports Bayesian estimates of the model parameters as point estimates of posterior means with 90% con…dence intervals computed by Metropolis-Hastings sampling algorithm based on 100000 draws. According to multivariate and univariate diagnostics, a sample of 100000 draws was su¢ cent to ensure convergence of the Metropolis-Hastings sampling algorithm. The estimation results are generally consistent with the existence literature. All parameters are estimated to be signi…cantly di¤erent from zero except the coe¢ cients of lagged output gap in the …scal policy rules. Moreover, the data are informative as the posterior marginal densities of the parameters are generally more concentrated than the prior marginal densities (Table 2, Figure 1)24 . Focusing on the Taylor-type monetary policy reaction function reveals that the monetary authority follows an active monetary policy (r = 1:75) in the sense of Leeper (1991) and demonstrates some concerns for output gap (ry = 0:41). Ortiz et al (2009) found that the feedback parameter on in‡ation, r ; is 1.19 and 1.77 for Turkey for the period 1989:q2 -1993:q4 and 1989:q2 -1998:q1, respectively. On the other hand, they found smaller response of nominal interest rates to deviation of output from its steady state value, ry , that was 0.17 and 0.20 for the …rst and second period described above, respectively.25 The comparison of the priors and posteriors shows that feedback parameter on in‡ation, r , is more concentrated, which re‡ects the fact that data is informative for this parameter (Table 2, Figure 1). The degree of interest rate smoothing is estimated as 0.62, which is in line with many studies.26 This estimate is higher than in Ortiz et al (2009) who estimate it 0.44 and 0.13 for periods 1989:q2 1993:q4 and 1989:q2 -1998:q1, respectively. We also …nd a substantial …scal smoothing in both spending and tax rules. The degree of …scal smoothing in government spending rule g = 0:59 is higher than that of tax rule ( = 0:48). Both of them are statistically signi…cant and data is informative for these parameters (Table 2, Figure 1). On the other hand, the coe¢ cients of lagged output gap in the tax and government spending policy rules are estimated to be positive but statistically insigni…cant. The estimated value for …scal feedback parameter in the government spending rule is negative and statistically signi…cant (gb = 0:035). for the UK and Sweden and 2.5 for the US, respectively. 24 One may ask the close values between prior and posterior means for some parameters in the model. However, this is a common …nding in this kind of DSGE models. See for example Fragetta & Kirsanova (2010). 25 Ortiz et al (2009) estimated monetary policy rule coe¢ cients by using DSGE model for many emerging market countries. In this framework they estimated Taylor coe¢ cient on in‡ation as 0.71 for Brazil, 1.49 for Chile, 1.64 for South Korea and 1.18 for Poland for di¤erent periods. They found average value for coe¢ cient on in‡ation and output as 1.22 and 0.34, respectively for all developing countries which they took into consideration in their study. 26 Similarly, Lubik & Schorfheide (2007) also estimated a high degree of interest rate smoothing as 0.69 for Canada. Lubik & Schorfheide (2005) also found a high degree of interest rate smoothing as 0.76 and 0.83 for the US and Euro Area, respectively. Moreover, Fragetta & Kirsanova (2010) estimated a high degree of smoothing parameter 0.66, 0.75 and 0.61 for the UK, Sweden and the US. 11 STRUCTURAL PARAMETERS 8 0.8 0.4 4 6 0.2 ζ θ φ σ 0.6 0.4 2 2 0.2 0 0 0 0 5 0 2 4 0 0.5 INTEREST RATE RULE 1 3 4 1 2 0 1 3 0 0 1 2 3 SPENDING RULE 0.5 1 20 8 1 g ρ g y b 6 g 2 0 0 1 1 0.5 0.5 0.5 r π r ρ 2 0 y 1.5 r 6 0 0 4 4 10 2 0.5 0 -0.2 1 0 TAX RULE 0 -0.1 0.2 -0.05 0 0.05 0.04 0.06 10 5 τ y b 40 2 τ ρ t 3 1 0 0 0.5 1 0 -0.2 0 prior 0.2 20 0 Figure 1: Distributions of parameters 12 0.02 posterior Parameter Prior Mean 0.5 2.0 3.0 0.5 1.5 0.4 0.5 0.0 0.5 0.0 -0.03 0.03 0.7 0.8 0.8 1.0 0.6 5.0 0.4 2.0 1.0 ' r r ry g gy y gb b a y a y r g Posterior Mean 0.59 1.53 3.35 0.62 1.75 0.41 0.59 0.0 0.48 0.03 -0.035 0.023 0.83 0.79 0.90 1.02 0.66 6.39 0.32 2.13 0.83 Con…dence Interval 90% 0.43 0.74 0.78 2.26 2.24 4.39 0.50 0.74 1.28 2.28 0.15 0.67 0.33 0.85 -0.08 0.08 0.29 0.70 -0.05 0.10 -0.07 -0.0 0.01 0.04 0.75 0.92 0.65 0.95 0.85 0.96 0.33 1.65 0.48 0.82 3.02 11.15 0.12 0.49 1.66 2.54 0.66 1.0 Posterior st. deviation 0.1 0.48 0.62 0.07 0.26 0.13 0.15 0.05 0.13 0.04 0.018 0.009 0.05 0.1 0.03 0.32 0.09 1.61 0.09 0.25 0.1 Prior st.deviation 0.1 0.5 0.75 0.2 0.5 0.2 0.15 0.05 0.15 0.05 0.02 0.01 0.1 0.1 0.1 4.0 4.0 4.0 4.0 4.0 4.0 * Metropolis-Hastings sampling algorithm based on 100000 draws with 25.3% acception rate. Estimated Equations: n^ o n ^ o ^ yt = E t y t+1 Et g t+1 + ($ = where ^ b^ H;t = b where + (1 + ') y t ^ ^ ^ ^ gt= ^ t= )) ; ^n (1 ^ bt+1 =rt + 1 bt rt = Et ^ mct = ( ^ )+ $ f H;t 1 + = ^ (1 ^ g gt ^ H;t ^n ^ rt r 1 1+ 1 t 1 + (1 rt ;$ = n^ f = yt + (1 ^ ^ gt+ t + (1 ) r) g ) yt r ^ 1 1 yt = (1 Et )(1 )(1 ) + (1 (1 )) ^ C ^ gt B ^ t ^n H;t + ry y t 1 + gb b t + g t 1 + ^ b bt t ^ ^n ^ rt 1) )) ; ^ yt ^ y c yt + t ^n ^ gy y t ^ (1 1 1) ct + (1 )( o ^ H;t+1 + mct + t + (1 1 ^ 1) ( + yt ^n +rt +"rt Table 2: Bayesian Estimation Results 13 n^ H;t+1 o The data is informative as the posterior mean is di¤erent from the prior mean (Figure 1). The …scal feedback parameter in the tax rule is positive ( b = 0:023) and statistically signi…cant. As it is expected, following an increase in the debt stock, taxes are raised and expenditures are reduced in order to stabilise the debt stock. Overall, it might be interpreted that debt stabilisation is an important motive in the conduct of …scal policy in Turkey (a passive …scal policy, in the sense of Leeper (1991)). Deep parameters of the Phillips curve, Calvo parameter (a degree of price stickiness), backward looking parameter (the share of rule thumb price setters), and are estimated as 0.59 and 0.83, respectively (Table 2). Additionally, the prior and posterior distributions are di¤erent from each other, which re‡ects the fact that data is informative for these parameters. The estimated value for Calvo parameter, , implies that the prices are kept constant by …rms for less than three quarters in Turkey. Price changes are more frequent in Turkey than in most developed countries but …rms are likely to …x their prices for a short period in a volatile economy.27 The fraction of the …rms ( = 0:83) takes into account past in‡ation when setting prices, and the remaining fraction (1 = 0:17) prefer to set prices optimally as in Calvo’s model. By combining the estimated values for the …xed value for , we obtain the reduced form structural coe¢ cients, ; Phillips curve. The implied values for f is 0.41 and for b is 0.5928 f and b, and with in the hybrid suggest that backward looking behaviour remains predominant.29 The intertemporal elasticity of substitution in consumption (1= ) and the elasticity of labor supply (1=') are found as 0.30 and 0.65, respectively. They are less than one and theoretically valid. The data are informative for both these parameters. Both autoregressive stochastic processes for technology and for the world output are found to be highly persistent. As displayed in Table 2, AR coe¢ cient of technology ( a ) and of world output are estimated 0.79 and 0.90, y respectively30 . Overall, estimated parameters of policy rules are found to be similar to those reported in Gali and Perotti (2003) in their asessment of monetary and …scal integration in Europe. 27 For example, Smets & Wouters (2003) estimated the coe¢ cient for as 0.90 for Eurozone. Another study, Fragetta & Kirsanova (2010) found the value of Calvo parameter as 0.70, 0.64 and 0.78 for the UK, Sweden and the US, respectively. 28 Since the …xed value for discount factor is very close to 1 ( = 0:99) ; the sum of the values for the coe¢ cients of lagged and expected future in‡ation is not equal to 1 but it is very close to 1. 29 Kad¬o¼ glu (2006) and Başkaya, Kara & Mutluer (2008) have a similar conclusion for Turkey. Kad¬o¼ glu (2006) …nds that the coe¢ cients of lagged and future in‡ation are 0.82 and 0.18 respectively for the post-crisis period (2001:q2 2005:q4). She indicates that although a forward looking behaviour gained importance in Turkey with the implementation of implicit in‡ation targeting regime in the period 2001 - 2005, a high degree of in‡ation inertia was also observed in the same period because of Turkey’s past experience related to high and chronic in‡ation since 1970s and hence the existence of strong past indexation behaviour in price determination. 30 Similarly, Fragetta & Kirsanova (2010) estimated AR coe¢ cient of technology 0.79, 0.76 and 0.81 for the UK, Sweden and the US, respectively. They found AR coe¢ cient of world output around 0.90 for all countries. 14 4.2 Impulse Response Analysis Figure 2 illustrates the results of impulse response analysis in terms of mean responses of observable variables as well as unobservable debt stock together with 90% con…dence interval. A positive tax shock reduces the output and increases the marginal cost and, thus, in‡ation (Figure 2). Following the increase in in‡ation, nominal interest rate is raised by the monetary authority. The increase in taxes as well as in in‡ation lead to a reduction in the debt stock, this e¤ect outweighs the e¤ect of higher nominal interest rates on debt. As a result of this, a tight …scal policy, introduced via the increase in taxes, is accompanied by a tight monetary policy. A positive spending shock leads to the increase of home in‡ation and output31 . Although an increase in government spending decreases in‡ation via marginal cost, the e¤ects of government spending on marginal cost and hence on in‡ation are o¤set by the e¤ect of increase in output. This results in higher in‡ation and the monetary authorities raise the interest rate. The increase in government spending as well as the increase in nominal interest rates raises debt stock. In order to stabilise debt, the government raises tax. As a result of this, an expansionary …scal policy via government spending is accompanied by a tight monetary policy and by a tight …scal policy via taxes. Following a cost push shock in‡ation raises, and in order to stabilise in‡ation nominal interest rate is increased. Although the nominal interest rate remains high, the debt falls on impact due to the bigger e¤ect of in‡ation. In order to bring both output and domestic debt stock back to their steady state levels the government implements an expansionary …scal policy by decreasing tax and increasing government spending. However, the responses of government spending, tax and debt are statistically insigni…cant (Figure 2). A positive shock to nominal interest rate lowers both in‡ation and output (Figure 2). The higher level of interest rate also leads to the debt accumulation. In order to stabilise the debt stock the government cuts the government expenditures and increases taxes. Lower government expenditures and higher taxes also help to stabilise in‡ation by a¤ecting marginal costs of the …rms. This situation can be summarised as follows: A tight monetary policy is followed by a tight …scal policy by means of spending and tax. World output shock (preference/taste/demand) leads to fall in both potential output and natural level of the nominal interest rate. The decrease in natural level of interest rate also results in a decrease in actual interest rates. Because of the lower nominal interest rates debt falls and so the governmet increases spending and decreases taxes. An expansionary …scal policy also a¤ects marginal cost and hence in‡ation. As a result of this, in‡ation falls and monetary authority keeps interest rates low in order to reduce de‡ationary pressure. 31 As we mentioned in the previous paragraph, an increase in taxes directly a¤ects in‡ation via marginal cost. On the other hand, government spending is a component of output and so an in increase (decrease) in government spending directly increases (decreases) output via IS curve. Thus, an increase (decrease) in output also a¤ects in‡ation in the same direction. 15 π productivity 0.01 world output 0.5 y 0.05 1 0 0 20 0 -0.5 40 0 0 b 0.02 1 0 0 0 -0.01 0 τ g 2 0 -0.02 20 -1 40 0 5 -0.02 20 -0.05 40 0 0.2 20 -0.04 40 0 0.1 -1 20 -2 40 0 2 20 40 20 40 20 40 20 40 20 40 20 40 0 -0.02 -0.5 0 0 0 mark up -0.04 2 -1 40 0 1 1 0.5 0 20 0 monetary -5 40 0 1 20 40 0 0.1 20 0 20 -0.5 40 0 0.5 20 -2 40 0 0.5 0 20 -0.1 40 0 0.02 20 0 0 20 -0.5 40 0 0.5 20 -1 40 0 2 -0.02 20 -0.04 40 0 4 1 0 20 20 -1 40 0 1 0.02 0.5 0 0 0 20 0.05 -0.5 40 0 0.04 20 -1 40 0 0.2 0 -2 40 0 0.2 20 0 0 20 20 -0.2 40 0 -0.5 40 0 1 20 -10 40 0 2 0.5 0 0 -2 0 0 -0.02 40 0 -0.5 40 0 20 10 0.02 20 20 0 0 0 -0.02 40 0 0.5 2 0 0 -0.05 -0.1 40 0 0.04 0 0.2 -0.2 -4 40 0 2 0 -1 -0.5 -0.1 20 1 0 0 -0.1 40 0 0.1 0 0 0.1 spending 20 -2 0 -1 tax r 20 -0.2 40 0 20 -0.5 40 0 Figure 2: Impulse Response Analysis 16 20 -4 40 0 Following a positive productivity shock the natural level of output increases and natural level of interest rate decreases. The decrease in natural interest rates causes the fall in actual interest rate. The lower nominal interest rates also result in lower real interest rates, and this stimulates the economy. Moreover, debt reduces following the decrease in nominal interest rates. The government responds to the fall in debt stock with an expansionary …scal policy. This a¤ects the marginal cost of the …rms, which leads to fall in in‡ation. 5 Conclusion The interaction between monetary and …scal policy plays an important role for stabilising an economy. The implementation of a sound …scal policy provides room for an active monetary policy. This paper estimates a small scale New Keynesian open economy DSGE model for the Turkish economy using a Bayesian estimation technique for the period of 2002:q1 - 2009:q3. We investigate the interactions between monetary policy and …scal policy, and assess their stabilisation role. The main focus of the analysis is the form and the strength of policy feedback rules. We estimate some deep structural parameters of the model but we keep the model small-scale. Essentially it serves as a data generating process to identify policy reactions. The …ndings of the paper are consistent with the suggestions of the related literature. Moreover, we …nd that the values of structural and policy parameters are generally consistent with those found for most developed countries. The parameter estimates show that the monetary authority reacts to in‡ation in an active way and only weakly responds to the output gap. The di¤erence between prior and posterior distributions demonstrates that data is informative for most policy parameters. We also …nd signi…cant …scal policy feedbacks on debt for both spending and tax rules. We show that …scal policy has contributed to the debt stabilization but we did not …nd any evidence on active stabilization of output gap by …scal means. Estimation results of the Phillips curve reveals that past and expected future in‡ations are key factors in determining current in‡ation and backward looking behaviour remains predominant. Despite successful disin‡ationary attempts, the in‡ation in Turkey still has some degree of persistence. References Adjemian, S., Juillard, M., Mihoubi, F., Perendia, G. & Villemot, S. (2009). Dynare Manual. Aktaş, Z., Kaya, N. & Özlale, Ü. (2010). Coordination Between Monetary Policy and Fiscal Policy for an In‡ation Targeting Emerging Market. Journal of International Money and Finance, 29(1), 123-138. Amato, J. D. & Laubach, T. (2003). Rule-of-Thumb Behaviour and Monetary Policy. European Economic Review, 47(5), 791-831. 17 An, S. & Schorfheide, F. (2007). Bayesian Analysis of DSGE Models. Econometric Reviews, 26(2), 113-172. Başkaya, Y. S., Kara, A. H. & Mutluer, D. (2008). Expectations, Communication and Monetary Policy in Turkey. Central Bank of Turkey Working Paper 08/01. Beetsma, R. M. W. 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Equilibria under ’Active’and ’Passive’Monetary and Fiscal Policies. Journal of Monetary Economics, 27(1), 129-147. Lubik, T. A. & Schorfheide, F. (2005). A Bayesian Look at New Open Economy Macroeconomics. In NBER Macroeconomics Annual 2005 (M. Gertler & K. Rogo¤, Eds.). Vol. 20, MIT Press, pp.313366. Lubik, T. A. & Schorfheide, F. (2007). Do Central Banks Respond to Exchange Rate Movements? A Structural Investigation. Journal of Monetary Economics, 54(4), 1069-1087. Mancini-Gri¤oli, T. (2007). Dynare User Guide: An Introduction to the Solution and Estimation of DSGE Models. Muscatelli, V. A. & Tirelli, P. (2005). Analyzing the Interaction of Monetary and Fiscal Policy: Does Fiscal Policy Play a Valuable Role in Stabilisation?. CESifo Economic Studies, 51(4), 549-585. Ortiz, A., Ottonello, P., Sturzenegger, F. & Talvi, E. (2009). Monetary and Fiscal Policies in a Sudden Stop: Is Tighter Brighter? In Dealing with an International Credit Crunch: Policy Responses to Sudden Stops in Latin America (E.Cavallo & A. Izquierdo, Eds.). Inter-American Development Bank. Rabanal, P. & Rubio-Ramirez, J. F. (2005). Comparing New Keynesian Models of the Business Cycle: A Bayesian Approach. Journal of Monetary Economics, 52(6), 1151-1166. Smets, F. & Wouters, R. (2003). An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area. Journal of the European Economic Association, 1(5), 1123-1175. Smets, F. & Wouters, R. (2007). Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach. American Economic Review, 97(3), 586-606. 19 Central Bank of the Republic of Turkey Recent Working Papers The complete list of Working Paper series can be found at Bank’s website (http://www.tcmb.gov.tr). Productivity and Wage Differentials between Private and Public Sector in the Developing Countries (Arzu Yavuz Working Paper No. 11/03, January 2011) Cross-Country Growth Empirics and Model Uncertainty: An Overview (Bülent Ulaşan Working Paper No. 11/02, January 2011) Augmented Neoclassical Growth Model: A Replication over the 1960-2000 Period (Bülent Ulaşan Working Paper No. 11/01, January 2011) A New Core Inflation Indicator for Turkey (Necat Tekatlı Working Paper No. 10/19, October 2010) A Bayesian Generalized Factor Model with Comparative Analysis (Necat Tekatlı Working Paper No. 10/18, October 2010) Measuring the Impact of Monetary Policy on Asset Prices in Turkey (Murat Duran, Gülserim Özcan, Pınar Özlü, Deren Ünalmış Working Paper No. 10/17, September 2010) The Trade Credit Channel of Monetary Policy Transmission: Evidence from Non-financial Firms in Turkey (Pınar Özlü, Cihan Yalçın Working Paper No. 10/16, September 2010) Economic Uncertanity and Money Demand Stability in Turkey (K. Azim Özdemir, Mesut Saygılı Working Paper No. 10/15, August 2010) Effects of Monetary Unions on Inequalities (Timur Hülagü, Devrim Ikizler Working Paper No. 10/14, August 2010) Understanding Sectoral Growth Cycles and the Impact of Monetary Policy in the Turkish Manufacturing Industry (Saygın Şahinöz, Evren Erdoğan Coşar Working Paper No. 10/13, July 2010) Türkiye İçin Yeni Reel Efektif Döviz Kuru Endeksleri (Hülya Saygılı, Mesut Saygılı, Gökhan Yılmaz Çalışma Tebliğ No. 10/12, Temmuz 2010) Türkiye’de Piyasa Göstergelerinden Para Politikası Beklentilerinin Ölçülmesi (Harun Alp, Hakan Kara, Gürsu Keleş, Refet Gürkaynak Musa Orak Çalışma Tebliğ No. 10/11, Haziran 2010) Organization of Innovation and Capital Markets (Cüneyt Orman Working Paper No. 10/10, May 2010) Welfare Gains from Disinflation in an Economy With Currency Substitution (H. Murat Özbilgin Working Paper No. 10/09, May 2010) Interest Rates and Real Business Cycles in Emerging Markets (S. Tolga Tiryaki Working Paper No. 10/08, May 2010) Employment and Output Dynamics in a Model with Social Interactions in Labor Supply (Yusuf Soner Başkaya, Mustafa Kılınç Working Paper No. 10/07, May 2010)