Publication: Global shock transmission mechanisms-the case of emerging markets
Abstract
Makroiktisat alanındaki akademik yazında değişik ülke ve ülke gruplarının arasındaki karşılıklı ekonomik ve finansal bağımlılıkların kökenleri ile ilgili yapılan araştırmalar büyük önem arz etmektedir. Bu çalışma, politika yapıcılar, araştırmacılar ve piyasa yapıcılarını çok yakından ilgilendiren dış şok aktarım mekanizmalarını gelişmekte olan ülkeler açısından Türkiye özelinde değerlendirmektedir. Bu doğrultuda, varolan global VAR modeline zamanla değişen parametreler özelliği ve faktör analizini entegre ederek elde edilen detaylı bir modeli gelişmiş ve gelişmekte olan ülke verilerinden oluşan geniş bir veri setine uygulayarak bu alandaki yazına katkıda bulunmak amaçlanmaktadır. Söz konusu model bu çalışmada gelişmiş ve gelişmekte olan ülkelerden kaynaklı politika faizi, ekonomik büyüme, finansal koşullar ve risk iştahı şoklarının Türkiye'deki makroekonomik ve finansal koşullara etkisini tahmin etmek üzere uygulanmıştır. Elde edilen sonuçlar sabit parametreli ve zamanla değişen parametreli modelin tahminleri arasında farklılıklar bulunduğunu ve zamanla değişen parametreli modelin gerekliliğini ortaya koymaktadır. Zamanla değişen parametreli model kulanılarak elde edilen etki tepki fonksiyonları global finansal ve risk şoklarının gayrisafi milli hasıla ve alt bileşenleri üzerindeki daraltıcı etkisini ve bu etkilerin kriz döneminde daha da belirginleştiğini göstermektedir. Bunun yanında literatürde oldukça sık rastlanılan ABD para politikasındaki sıkılastırmanın daraltıcı etkisine dair bulgu, bu çalışmada yerini global risk şoklarına bırakmıştır. Bu çalışmanın başka bir önemli bulgusu da global ve gelişmiş ülkeler finansal koşullarında bir sıkılaşma Türkiye'deki finansal koşullarda da sıkılaşmaya yol açarken diğer gelişmekte olan ülkelerin finansal koşullarında da sıkılaşmanın ise tam tersi bir etkide bulunduğudur. Bu durum gelişmekte olan ülkelerin uluslararası sermaye akımları için rekabet halınde bulunmalari ile açıklanabilir. Hisse senedi fiyatları ve hisse senedi fiyatlarındaki oynaklık global finansal koşullardaki bir sıkılaşmadan olumsuz etkilenmekte, ve hassasiyetleri kriz dönemlerinde artmaktadır. Son olarak, modelimiz pozitif bir global makroekonomik şokun Türkiye'nin gayri safi milli hasıla ve yatırımında artışa, reel efektif döviz kurunda değerlenmeye ve dış ticaret dengesinde bozulmaya yol açtığını tahmin etmektedir. Ancak, böyle bir pozitif şok reel efektif döviz kurunda değerlenmeye sebep olduğundan enflasyonda yükselmeye yol açmamaktadır.
An important task for empirical macroeconomics is to identify the origins of the interdependenciesbetween the macroeconomic and financial conditions of different countriesand country groups. This thesis attempts to improve our understanding of the transmissionmechanisms of international shocks in the context of emerging markets, which is of greatinterest to both academics and policy makers as well as market participants. We contributeto this area of research by applying a detailed global framework that extends the existingGVAR model using factor analysis to account for the interdependencies between emergingand advanced economies. To this end, we extract global, group and country levelfactors that drive macroeconomic and financial fluctuations to investigate their relativeimportance for an emerging economy. We then incorporate these factors in a multi leveltime-varying parameter factor augmented global VAR model that combines aspects of factoranalysis and global VAR (GVAR) models. For the purposes of this study we will limitour focus to the effects of external shocks originating from both emerging and advancedeconomies on the Turkish economy to evaluate the implications of external changes ininterest rates, output growth, financial conditions and risk appetite on Turkey. Our resultsshow that there are many inconsistencies between the constant parameter model and theaverages of time-varying impulse responses over the sample period, suggesting that theconstant parameter version of our model might be of limited interest given the time variationin our results. Moreover the impulse responses from the time-varying parametermodel reveal that in response to an increase in global risk, Turkish output and its componentsdecrease whereas trade balance improves and these effects are more pronouncedduring the crisis. However, contrary to the findings in the existing literature, the impulseresponses to a shock to the US policy rate does not have the expected contractionary effects,potentially because we include a global financial factor along with the US monetary policy rate in our model and therefore the well documented contractionary effects of USinterest rate is taken over by the global financial risk shock. Another important finding ofthe study is that tightening in global and advanced countries’ financial conditions almostalways causes a tightening in Turkish financial conditions whereas tightening in the financialconditions of emerging economies has the opposite effect possibly because emergingmarkets compete with each other for international capital flows. Equity prices and equityprice volatility, in particular, are affected negatively by tightening global financial conditionsand become more sensitive during the crisis period. Finally, in our model a positiveglobal macroeconomic shock results in an increase in Turkish output and investment aswell as an appreciation in real effective exchange rate and a deterioration in the trade balance.This positive shock, however, does not result in an increase in inflation, perhaps dueto the real exchange rate appreciation.
An important task for empirical macroeconomics is to identify the origins of the interdependenciesbetween the macroeconomic and financial conditions of different countriesand country groups. This thesis attempts to improve our understanding of the transmissionmechanisms of international shocks in the context of emerging markets, which is of greatinterest to both academics and policy makers as well as market participants. We contributeto this area of research by applying a detailed global framework that extends the existingGVAR model using factor analysis to account for the interdependencies between emergingand advanced economies. To this end, we extract global, group and country levelfactors that drive macroeconomic and financial fluctuations to investigate their relativeimportance for an emerging economy. We then incorporate these factors in a multi leveltime-varying parameter factor augmented global VAR model that combines aspects of factoranalysis and global VAR (GVAR) models. For the purposes of this study we will limitour focus to the effects of external shocks originating from both emerging and advancedeconomies on the Turkish economy to evaluate the implications of external changes ininterest rates, output growth, financial conditions and risk appetite on Turkey. Our resultsshow that there are many inconsistencies between the constant parameter model and theaverages of time-varying impulse responses over the sample period, suggesting that theconstant parameter version of our model might be of limited interest given the time variationin our results. Moreover the impulse responses from the time-varying parametermodel reveal that in response to an increase in global risk, Turkish output and its componentsdecrease whereas trade balance improves and these effects are more pronouncedduring the crisis. However, contrary to the findings in the existing literature, the impulseresponses to a shock to the US policy rate does not have the expected contractionary effects,potentially because we include a global financial factor along with the US monetary policy rate in our model and therefore the well documented contractionary effects of USinterest rate is taken over by the global financial risk shock. Another important finding ofthe study is that tightening in global and advanced countries’ financial conditions almostalways causes a tightening in Turkish financial conditions whereas tightening in the financialconditions of emerging economies has the opposite effect possibly because emergingmarkets compete with each other for international capital flows. Equity prices and equityprice volatility, in particular, are affected negatively by tightening global financial conditionsand become more sensitive during the crisis period. Finally, in our model a positiveglobal macroeconomic shock results in an increase in Turkish output and investment aswell as an appreciation in real effective exchange rate and a deterioration in the trade balance.This positive shock, however, does not result in an increase in inflation, perhaps dueto the real exchange rate appreciation.