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" Global Shock Transmission Mechanisms: "
Hallam, Bahar Sungurtekin
Doğruel, A. Suut
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Latin Dissertation
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| Language of Document
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English
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| Record Number
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1110999
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| Doc. No
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TLpq2494903363
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| Main Entry
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Doğruel, A. Suut
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Hallam, Bahar Sungurtekin
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| Title & Author
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Global Shock Transmission Mechanisms:\ Hallam, Bahar SungurtekinDoğruel, A. Suut
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| College
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Marmara Universitesi (Turkey)
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| Date
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2019
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| student score
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2019
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| Degree
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Ph.D.
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| Page No
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106
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| Abstract
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An important task for empirical macroeconomics is to identify the origins of the interdependencies between the macroeconomic and financial conditions of different countries and country groups. This thesis attempts to improve our understanding of the transmission mechanisms of international shocks in the context of emerging markets, which is of great interest to both academics and policy makers as well as market participants. We contribute to this area of research by applying a detailed global framework that extends the existing GVAR model using factor analysis to account for the interdependencies between emerging and advanced economies. To this end, we extract global, group and country level factors that drive macroeconomic and financial fluctuations to investigate their relative importance for an emerging economy. We then incorporate these factors in a multi level time-varying parameter factor augmented global VAR model that combines aspects of factor analysis and global VAR (GVAR) models. For the purposes of this study we will limit our focus to the effects of external shocks originating from both emerging and advanced economies on the Turkish economy to evaluate the implications of external changes in interest rates, output growth, financial conditions and risk appetite on Turkey. Our results show that there are many inconsistencies between the constant parameter model and the averages of time-varying impulse responses over the sample period, suggesting that the constant parameter version of our model might be of limited interest given the time variation in our results. Moreover the impulse responses from the time-varying parameter model reveal that in response to an increase in global risk, Turkish output and its components decrease whereas trade balance improves and these effects are more pronounced during the crisis. However, contrary to the findings in the existing literature, the impulse responses 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 US interest rate is taken over by the global financial risk shock. Another important finding of the study is that tightening in global and advanced countries’ financial conditions almost always causes a tightening in Turkish financial conditions whereas tightening in the financial conditions of emerging economies has the opposite effect possibly because emerging markets compete with each other for international capital flows. Equity prices and equity price volatility, in particular, are affected negatively by tightening global financial conditions and become more sensitive during the crisis period. Finally, in our model a positive global macroeconomic shock results in an increase in Turkish output and investment as well 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 due to the real exchange rate appreciation.
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Economic theory
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Economics
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Finance
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