Economics

Permanent URI for this collectionhttps://hdl.handle.net/10679/316

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Now showing 1 - 20 of 60

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A picture's worth a thousand numbers
(Harvard Business Publishing, 2013-06) Hogarth, R. M.; Soyer, Emre; Business Administration; SOYER, Emre
The article examines research on the subject of humans' difficulty in understanding probability and the value of graphic representations in improving that understanding. Topics include research by "Harvard Business Review" journal into statistical computer simulations, the hypothesis that probability theory has been helping humans analyze information for years before it was formally defined, and how graphs and simulations could improve businesses' decision-making processes.
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Reclaim-proof allocation of indivisible objects
(Elsevier, 2013-09) Ekici, Özgün; Economics; EKİCİ, Özgün
We study desirability axioms imposed on allocations in indivisible object allocation problems. The existing axioms in the literature are various conditions of robustness to blocking coalitions with respect to agentsʼ ex ante (individual rationality and group rationality) and ex post (Pareto efficiency) endowments. We introduce a stringent axiom that encompasses and strengthens the existing ones. An allocation is reclaim-proof if it is robust to blocking coalitions with respect to any conceivable interim endowments of agents. This is an appealing property in dynamic settings, where the assignments prescribed by an allocation to be implemented need to be made in multiple rounds rather than all in one shot. We show that an allocation is reclaim-proof if and only if it is induced by a YRMH–IGYT mechanism (introduced by Abdulkadiroğlu and Sönmez, 1999) and if and only if it is a competitive allocation.
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Hierarchical modeling of choice concentration of US households
(Wiley, 2014) Jeliazkov, I.; Yang, X.-S.; Hansen, K. T.; Khan, Romana; Singh, V.; Business Administration; Jeliazkov, I.; Yang, X. S.; KHAN, Romana
This chapter contains sections titled: Introduction Data Description Measures of Choice Concentration Methodology Results Interpreting θ Decomposing the Effects of Time, Number of Decisions and Concentration Preference Conclusion.
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A theory of iterative choice in lists
(Elsevier, 2014-08) Güney, Begüm; Economics; GÜNEY, Begüm
In a list, alternatives appear according to an order and the decision maker follows this order to evaluate alternatives. He records the first alternative as the initial survivor and then at every stage, he compares the current survivor with the next alternative in the list to determine whether the next alternative replaces that to become the new survivor. When the entire list is exhausted in this manner, the agent chooses the survivor in the last stage. We call this procedure “iterative” and provide an axiomatic characterization for it when the order in every list is observable. Then, we also study characterizations of the iterative procedure that is prone to the well-known primacy and recency effects. Finally, we analyze situations where the order of alternatives is unknown to an outside observer and provide a characterization result that enables such an outsider with limited information to understand whether the decision maker can indeed be an iterative list chooser for some order.
Open Access
The productivity gap: Monetary policy, the subprime boom, and the post-2001 productivity surge
(Elsevier, 2015-03) Selgin, G.; Beckworth, D.; Bahadır, Berrak; Economics; BAHADIR, Berrak
It is widely believed that, in the wake of the dot.com crash, the Fed kept the federal funds target rate too low for too long, inadvertently contributing to the subprime boom. We attribute this and other Fed departures from a “neutral” policy stance to the Fed's failure to respond appropriately to exceptional rates of total factor productivity growth. We then show how the Fed, by adhering to a nominal GDP growth rate target, might have succeeded in maintaining such a neutral stance.
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Financial development convergence
(Elsevier, 2015-07) Bahadır, Berrak; Valev, N.; Economics; BAHADIR, Berrak
We show that credit levels relative to GDP and other measures for financial development tend to converge across countries over time. The results are obtained using a broad sample of countries over many years and controlling for the quality of country-level institutions, the efficiency of financial institutions, and a range of macroeconomic variables. While we find evidence for convergence in the broad sample, we show that it levels off when countries reach a medium level of financial development. At high levels of financial development, convergence slows down even more and becomes negligible.
Open Access
The reset inflation puzzle and the heterogeneity in price stickiness
(Elsevier, 2015-11) Kara, Engin
New Keynesian models have been criticised on the grounds that they require implausibly large price shocks to explain inflation. Bils et al. (2012) show that, while these shocks are needed to reduce the excessive inflation persistence generated by the models, they give rise to unrealistically volatile reset price inflation. This paper shows that introducing heterogeneity in price stickiness in the models overcomes these criticisms directed at them. The incorporation of heterogeneity in price stickiness reduces the need for large price shocks. With smaller price shocks, the new model comes close to matching the data on reset inflation.
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An experiment on aspiration-based choice
(Elsevier, 2015-11) Güney, Begüm; Richter, M.; Economics; GÜNEY, Begüm
This paper experimentally studies the influence of aspirations on choice. Motivated by the theoretical model of Guney et al. (2015), we consider choice problems which may include unavailable alternatives. In a choice problem, an aspiration is the most desired alternative there (available or not). In our design, we endogenously derive both aspirations and a subjective similarity notion that operates between an aspiration and other alternatives. We find that (i) choice reversals are more likely when an unavailable aspiration alternative is added into the environment than when an unavailable non-aspiration alternative is added, (ii) an available option is more likely to be chosen when there is an unavailable aspiration that is similar to it compared to when there is no such option in the environment, (iii) choices are better explained by a similarity-based procedure when the subjective similarity notion that is derived in a separate part of the experiment is used rather than the Euclidean distance.
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Emerging market economies and the world interest rate
(Elsevier, 2015-11) Bahadır, Berrak; Lastrapes, W. D.; Economics; BAHADIR, Berrak
We use a Factor Augmented VAR model to estimate the dynamic responses of interest rates in emerging market economies to the ‘world’ interest rate, which we extract from a dynamic factor model of yields in industrialized countries. Our results provide evidence that many emerging market yields respond to world rate shocks, at least gradually, which is broadly consistent with capital market integration. Our findings also suggest that the world rate captures information about emerging market yields not contained in US rates, which are typically used to proxy for the world rate.
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Credit decomposition and business cycles in emerging market economies
(Elsevier, 2016) Bahadır, Berrak; Gumus, I.; Economics; BAHADIR, Berrak
This paper analyzes the differential effects of household and business credit dynamics on business cycles in emerging market economies. We first provide evidence that existing results relating credit expansions to economic expansions, real exchange rate appreciations and trade deficits hold more strongly for household credit than business credit. Then, using a two-sector real business cycle model of a small open economy, we study the model dynamics generated by shocks to household credit and business credit, the latter further divided into credit to tradable and nontradable sectors. The results show that the three types of credit shocks generate different dynamics in sectoral input and output levels as well as the real exchange rate. The model successfully generates the comovement between the cycle and different credit types, matching the strong positive correlation of household credit with output and real exchange rate, and the negative correlation with net exports. Our results underline the importance of distinguishing between household and business credit in studying credit dynamics.
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Performance of inflation targeting in retrospect
(Springer International Publishing, 2016) Kose, N.; Yalcin, Y.; Yücel, Mustafa Eray; Economics; YÜCEL, Mustafa Eray
Both inflation and inflation expectations declined considerably in the inflation targeting countries during the past two decades. The questions of whether this decline has actually been an outcome of inflation targeting solely and whether inflation targeting has been successful in stabilizing other macroeconomic variables though remain. This study considers these questions on the basis of 16 inflation targeting countries and 21 non-targeting ones using a difference-in-difference approach. With regard to the baseline period of 1996–1999 during which neither of the groups was implementing inflation targeting, a difference-in-difference approach was employed to assess the effects of inflation targeting on inflation, output growth, real exchange rates, inflation volatility and real exchange rate volatility during moving 4-year periods between 2007 and 2015. Our estimates suggest that inflation targeting was superior in terms of harnessing inflation as well as inflation volatility. In terms of economic growth, however, inflation targeting seems to be neutral and in terms of real exchange rates it seems not to be stabilizing, if not de-stabilizing. A hybrid version of inflation targeting, namely the conventional inflation targeting augmented by an improved capacity to deliver macro-prudence as in the post-Lehman economic climate, can therefore be viewed as the best available policy alternative for the upcoming decades.
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Will a fat tax work?
(Wiley, 2016-01) Khan, Romana; Misra, K.; Business Administration; KHAN, Romana
Of the many proposals to reverse the obesity epidemic, the most contentious is the use of price-based interventions such as the fat tax. Previous investigations of the efficacy of such initiatives in altering consumption behavior yielded contradictory findings. In this article, we use six years of point-of-sale scanner data for milk from a sample of over 1,700 supermarkets across the United States to investigate the potential of small price incentives for inducing substitution of healthier alternatives. We exploit a pricing pattern particular to milk in the United States, whereby prices in some geographical regions are flat across whole, 2%, 1%, and skim milk; whereas in other regions they are decreasing with the fat content level. The prevailing price structure is determined at a chain and regional level, and is independent of local demand conditions. This exogenous variation in price structure provides a quasi-experimental set-up to analyze the impact of small price differences on substitution across fat content. We use detailed demographics to evaluate price sensitivity and substitution patterns for different socioeconomic groups. Results show that small price differences are highly effective in inducing substitution to lower calorie options. The impact is highest for low-income households who are also most at risk for obesity. Our results suggest that a selective taxation mechanism that lowers the relative prices of healthier options, such that those price changes are reflected in shelf prices at the point-of-purchase, can serve as an effective health policy tool in the efforts to control obesity.
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Accounting for age in marital search decisions
(Elsevier, 2016-06) Akın, Şerife Nuray; Platt, B. C.; Economics; DURAN, Şerife Nuray
Spouse quality, measured by educational attainment, varies significantly with the age at which an individual marries, peaking in the mid-twenties then declining through the early-forties. Interestingly, this decline is much sharper for women than men, meaning women increasingly marry less educated men as they age. Moreover, quality has worsened for educated women over several decades, while it has improved for men. Using a non-stationary sequential search model, we identify and quantify the search frictions that generate these age-dependent marriage outcomes. We find that single-life utility is typically the dominant friction, though college women in the 1950 and 1970 cohorts are affected even more by deteriorating suitor quality. Regardless of educational status, individual choice (as opposed to pure luck) is pivotal in explaining marriage market outcomes earlier in life.
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The Turkish appetite for gold: An Islamic explanation
(Elsevier, 2016-06) Gülseven, O.; Ekici, Özgün; Economics; EKİCİ, Özgün
A significant constituent of household wealth in Turkey is gold. Families accumulate gold especially on a variety of cultural occasions such as female-only gold days, circumcision feasts, and engagement and wedding ceremonies. This paper attempts to explain the gold appetite of Turkish households with a rational approach, although still rooted in culture. Many people in Turkey view “earning interest on money” as a transgression of Islamic rules and avoid investing their savings in fixed-income investment instruments. We study the implications of this investor behavior on portfolio gold holdings. Using the Markowitz mean-variance model and monthly return data from 1997 until 2015, we calculate optimal investment portfolios. We find that while the share of portfolio gold holdings is less than a meager 4% if the portfolio includes interest-earning deposits (in addition to the stock index, USD, EURO, and gold), this ratio may go up to more than 50% if interest-earning deposits are not included. Our results show that the role gold plays in an investment portfolio is greatly amplified when interest-earning deposits are not viable. We believe the key factor driving our pronounced findings has been Turkey's historically high rates of inflation. Avoiding fixed-income instruments, many Turkish investors may have turned to gold to shield their savings against inflation and manage portfolio risks caused by its high volatility. Our findings suggest that Turkish policymakers may find it useful to popularize Sukuk (Islam-compliant bonds) if they are to divert household savings away from gold into more productive uses.
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An equilibrium analysis of the probabilistic serial mechanism
(Springer Science+Business Media, 2016-08) Ekici, Özgün; Kesten, O.; Economics; EKİCİ, Özgün
The prominent mechanism of the recent literature in the assignment problem is the probabilistic serial (PS). Under PS, the truthful (preference) proÖle always constitutes an ordinal Nash Equilibrium, inducing a random assignment that satisÖes the appealing ordinal e¢ ciency and envy-freeness properties. We show that both properties may fail to be satisÖed by a random assignment induced in an ordinal Nash Equilibrium where one or more agents are non-truthful. Worse still, the truthful proÖle may not constitute a Nash Equilibrium, and every non-truthful proÖle that constitutes a Nash Equilibrium may lead to a random assignment which is not ordinally e¢ cient, not even weakly envy-free, and which admits an ex-post ine¢ cient decomposition. A strong ordinal Nash Equilibrium may not exist, but when it exists, any proÖle that constitutes a strong ordinal Nash Equilibrium induces the random assignment induced under the truthful proÖle. The results of our equilibrium analysis of PS call for caution when implementing it in small assignment problems.
Open Access
A new estimation technique of sovereign default risk
(Elsevier, 2016-12-27) Soytaş, Mehmet Ali; Volkan, Engin; Economics; SOYTAŞ, Mehmet Ali; VOLKAN, Engin
Using the fixed-point theorem, sovereign default models are solved by numerical value function iteration and calibration methods, which due to their computational constraints, greatly limits the models' quantitative performance and foregoes its country-specific quantitative projection ability. By applying the Hotz-Miller estimation technique (Hotz and Miller, 1993)- often used in applied microeconometrics literature- to dynamic general equilibrium models of sovereign default, one can estimate the ex-ante default probability of economies, given the structural parameter values obtained from country-specific business-cycle statistics and relevant literature. Thus, with this technique we offer an alternative solution method to dynamic general equilibrium models of sovereign default to improve upon their quantitative inference ability.
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A comparison of optimal policy rules prior to and during inflation targeting: empirical evidence from Bank of Canada
(Taylor & Francis, 2017) Eksi, O.; Kaya Eksi, N.; Özlale, Ümit; Economics; ÖZLALE, Ümit
We examine policy rules that are consistent with inflation targeting (IT) framework in a small macroeconomic model of the Canadian economy. We set up an optimal linear regulator problem and derive policy rules to compare the dynamics of pre-IT and IT eras. We find that while the optimal monetary policy rule in the pre-IT period is best described with a loss function that attaches equal weight to price stability, financial stability and output stability; the IT era is dominated by the price stability objective followed by the financial stability and output stability, consecutively. Moreover, we do not find an explicit role for exchange rate stability in the objective function of the Bank of Canada for both monetary policy eras. We, then, compare the properties of the derived optimal rules with those of an ad hoc Taylor rule for the IT period. In response to inflationary shocks, Taylor rule brings down inflation rates more quickly compared to the derived policy rules, but at the cost of a higher sacrifice ratio and more volatile interest rates.
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Catching up or drifting apart: convergence of household and business credit in Europe
(Elsevier, 2017) Bahadır, Berrak; Valev, N.; Economics; BAHADIR, Berrak
We provide evidence for convergence in the levels of household and business credit across European countries. The process is particularly strong for the transition countries that have a low initial level of private credit and are catching up with Western Europe. However, the convergence is associated mostly with household credit, including housing loans and consumer credit, which may limit its benefits for economic growth.
Open Access
Role of strategic interactions in corporate sustainability decisions: an empirical investigation
(Turkish Economic Association, 2017-01-01) Soytaş, Mehmet Ali; Uşar, Damla Durak; Economics; SOYTAŞ, Mehmet Ali; Uşar, Damla Durak
There is a large amount of empirical literature on the relationship between corporate sustainability and corporate financial performance. However, the literature considers company-specific aspects affecting the link but omits the influence of the competition. A firm’s gains from its sustainability efforts, however, depend on whether its industry competitors also perform sustainable actions—whether similar in type or different. Thus, we consider the sustainability decision making of companies to be of a strategic nature and show that strategic motives, typically ignored in the literature, can be an important factor in the process. We estimate an Instrumental Variable (IV) Probit model, using inclusion in the MSCI KLD 400 Social Index and draw on financial information from the Wharton Research Data Services COMPUSTAT dataset in order to identify the effect of competition. We find that the effect of competition on the likelihood of entry into the sustainability market is negative, but this is only true if the endogeneity is correctly taken into account. Probit estimates present an upward bias, which means that results from raw models can be misleading in designing policies on sustainability. Overall evidence suggests a central role for strategic motives in management’s sustainability decisions.
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Effectiveness of monetary policy: evidence from Turkey
(Springer International Publishing, 2017-08) Avci, S. B.; Yücel, Mustafa Eray; Economics; YÜCEL, Mustafa Eray
An effective monetary policy framework is often viewed as a pre-condition for well-functioning financial markets. Yet measuring monetary policy effectiveness is not straightforward; it requires empirical work to understand the impact of financial infrastructure, competitiveness of financial markets, and current economic conditions. In particular, monetary policy effectiveness depends on the extent to which the chosen interest rate affects all other financial prices—including the entire term structure of interest rates, credit rates, exchange rates, and asset prices. This paper examines the effectiveness of monetary policy in Turkey by focusing on interest rate pass-through outcomes by way of an interacted vector autoregressive (IVAR) approach. The results suggest that policy-led rate changes are fully transmitted to deposit and credit rates within eight months. Competition in the banking sector (as well as that sector’s liquidity and profitability), dollarization, exchange rate flexibility, inflation, and term structure all have a positive effect on interest rate pass-through; whereas regulatory quality, GDP growth, monetary growth, industrial growth, and capital inflows have a negative effect. Using various tests, we find that the effect of financial development and macroeconomic variables on interest rate pass-through is neither robust nor time-invariant.

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