Abstracts

“On the Political Economy of the Informal Sector and Income Redistribution” forthcoming in European Journal of Law and Economics (with G. Ozbek)

Abstract: In this paper we develop and simulate a political economy model to produce qualitative results to illustrate the differences between economies with different distributional features. We analyze a general equilibrium model in which agents choose to be employed in formal or in the informal sector given their productivity levels. The formal sector is then taxed to provide income subsidies and the level of redistribution is determined endogenously through majority voting. The model accounts for the different sizes of informal sector and income redistribution in Turkey, Mexico and United States.

“Structural Change and Economic Growth: a Calibration Exercise for Turkey” (2010), Economics Bulletin, Vol. 30 no.2 pp. 983-995. (with C. E. Alper and O. P. Ardic)

Abstract: Using data for the years 1972 -2006, we calibrate the dynamic general equilibrium model of structural change by Kongsamut et al. (2001) to Turkey. We then predict the shares of output and employment for the agricultural, manufacturing, and services sectors along the balanced growth path for Turkey until 2050. Similar to the past experience of the developed economies, we observe a declining share of agriculture in both employment and output. However, the rate of decline is much slower and based on the model, we predict the agricultural sector will still have a 10% share of output and employment by 2050 in Turkey.

“Estimating Central Bank Behavior in Small Open Economies” (2008) in Central Banking in Middle East and North Africa , ed. David Cobham and Ghassan Dibeh , Routledge, New York, USA, 210-226. (with C.E. Alper)

Abstract: An inflation targeting regime generally entails abolishing exchange rate targets in favor of monetary targets. It is not clear, however , why the central banks in emerging markets with inflation targeting regimes should not care about exchange rate movements given the vulnerability of their economies to such fluctuations. In this paper, we develop and estimate an augmented Taylor rule for the Turkish economy in which the central bank responds not only to output gap and inflation gap but also to an exchange rate gap. We employ a dual extended Kalman filter technique to estimate time varying parameters and unobserved variables, such as exchange rate target and potential output, simultaneously. This technique allows us to trace any changes in central bank behavior including regime shifts after the switch. We find positively significant coefficients for output gap and inflation gap in accordance with a Taylor rule. We also find that Central Bank of Turkey has given relatively more importance to the inflation gap than output gap or the exchange rate gap in determining interest rates.

“The Conduct of Monetary Policy in Turkey in the Pre- and Post-crisis Period of 2001 in Comparative Perspective: a Case for Central Bank Independence” (2009) in Turkey and the Global Economy: Neoliberal Restructuring and Integration in the Post-Crisis Era, ed. Fikret Senses and Ziya Onis, Routledge, Oxon, England, 50-72 . (with C.E Alper)

Abstract: We document the role of independence for Central Bank of Republic of Turkey (CBRT) as it matters to successful implementation of monetary policy. We compare the implementation of monetary policy pre- and post-crisis periods within an empirical framework which allows us to measure the role of independence quantitatively. We estimate a Taylor rule with time varying coefficients by employing a dual extended Kalman filter. We find that the coefficient of inflation gap has increased substantially since CBRT gained de-juro independence.

“Inequality and Growth : A Demand Perspective” SBE Working Paper , ISS/EC 2007-08

Abstract: This paper builds a demand based theory of inequality and growth in a Schumpeterian setting which accounts for the non-linear relation between them. Inequality affects growth through demand patterns for new products when people have hierarchic preferences. In a society where assets are highly concentrated, a redistribution increases growth if it also increases the total demand for innovators. One such case is a redistributional scheme which makes poor just rich enough to afford the innovators product-maybe now maybe in the nearer future- without making the rich poor enough so that it forgoes consumption of the innovators product today. This case is most likely to occur when inequality is already high. On the other hand, if the rich becomes just poor enough so that the demand for innovators product falls, which is likely to occur when inequality is already low, reducing inequality further hurts growth. The main reason for this result is that when the composition of aggregate demand shifts away from innovation, resources are necessarily wasted. Overall, this suggests that the relation between inequality and growth can be described by an inverted u shape. I also study the link between patent length and growth at different levels of inequality. A reduction of patent length leads to indivisibility of efficient redistributive policies.

“An Empirical Analysis of the Relationship between Inequality and Innovation in a Schumpeterian Framework”(under review), SBE Working Paper ,ISS/EC 2007-10

Abstract: I empirically investigate the non-linear relationship between inequality and innovation in a Schumpeterian setup where growth is expressed by the rate of innovations. In this framework inequality plays a role in determining the market sizes for innovators and therefore is a major determinant of growth. By using two new data sets of inequality and several panel data techniques including non-parametric methods, I find support for an inverted U-shape between inequality and innovative activities. The results are robust to inequality definitions and estimation techniques.

“Inequality and Growth : Where Are We Heading. A Survey of Recent Findings ” SBE Working Paper , ISS/EC 2007-07

Abstract: This paper surveys the evolution of the Kuznet's hypothesis and the recent findings of the inequality and growth literature. I find that, although the negative relation between inequality and growth is now well established in theoretical literature, there are discrepancies in the recent empirical findings. Even though some of these discrepancies can be attributed to data and estimation problems, the main problem remains a lack of theory of inequality and growth which can account for all the empirical discrepancies. A possible solution is suggested which emphasizes the role of demand patterns created by inequality.

“Complementary Shifts of Technology and Economic Development” SBE Working Paper , SS/EC 2007-09

Abstract: I show how multiple equilibria or development traps occur in a two sector partial equilibrium model given an externality among intermediate inputs. The final goods sector achieves a higher productivity by adopting more roundabout ways of production. The growing demand by the final goods sector, in turn, induces more and more firms to enter the intermediate goods sector facilitating a wider range of production services to become available. This leads to a circularity or a self-fulfilling mechanism that triggers the economy to take off. The positive externality that arises because of the interaction between the sectors is the key to my model. Although the complementarity of newly arrived technologies effect the degree of the externality the equlibrium path of the economy is determined only by the initial degree of the intermediate input variety.

“Optimal Taxation in a Finite Horizon Model: Are Lump-Sum Taxes a Better Solution?” SBE Working Paper , 07/07, 2007

Abstract: I develop a finite horizon model characterizing the dynamic behavior of an economy where agents face a probability of death each period. The main problem with finite horizon models is to derive the aggregates of the economy without making assumptions about the population and age structure. I solve this problem using a methodology similar to Blanchard(1985). I show when agents are faced with life uncertainty lump-sum taxes are welfare enhancing compared to distortionary taxes.