Essays on trend inflation in the open-economy

Download

index.pdf

Date

2020

Author

Yılmaz, Yusuf Ömü

Metadata

Show full item record

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Item Usage Stats

465
views

131
downloads

The existing new Keynesian open economy literature tends to make a simplifying assumption that there is no trend inflation. The dissertation is composed of two essays which incorporate positive trend inflation into Open Economy New-Keynesian Models. In the first essay, a standard small open economy model is reformulated to account for positive trend inflation. Then, the model is used to understand the effects of macroeconomic shocks in a small open economy when trend inflation is positive. The main finding is that allowing for trend inflation significantly affects the implications of the dynamics of real exchange rate. Specifically, higher trend inflation induces more persistent real exchange rate responsiveness to shocks. Furthermore, adding trend inflation to the standard model improves the model in the direction of resolving the Purchasing Power Parity and Delayed-overshooting Puzzles. In the second essay, two-open and identical economy model is extended to account for positive trend inflation and heterogeneity-in price stickiness. Then, this model is used to analyse the effect of increased trade openness on the determinacy region at different rates of trend inflation. It is found that positive trend inflation shrinks the determinacy region more as the degree of openness increases. The shrinkage is higher in the version of the model with heterogeneity in price stickiness. Moreover, it is discussed how monetary policy transmission mechanism differs to that in closed-economy model and how those differences affect the dynamics of macroeconomics variables.

Subject Keywords

Inflation (Finance), Inflation (Finance) Econometric models, Trend Inflation, Trade Openness, New-Keynesian Philips Curve, Equilibrium Determinacy

URI

http://etd.lib.metu.edu.tr/upload/12625550/index.pdf
https://hdl.handle.net/11511/45786

Collections

Graduate School of Social Sciences, Thesis

Suggestions

OpenMETU
Core

A market model for pricing inflation indexed bonds with jumps incorporation Güney, İbrahim Ethem; Hayfavi, Azize; Department of Financial Mathematics (2008) Protection against inflation is an essential part of the today's financial markets, particularly in high-inflation economies. Hence, nowadays inflation indexed instruments are being increasingly popular in the world financial markets. In this thesis, we focus on pricing of the inflation-indexed bonds which are the unique inflation-indexed instruments traded in the Turkish bond market. Firstly, we review the Jarrow-Yildirim model which deals with pricing of the inflation-indexed instruments within the HJM fr...
Determination of inflation rate in a hidden markov model framework: Turkey case Aydoğan, Dilek; Kestel, Sevtap Ayşe; Yolcu Okur, Yeliz; Department of Financial Mathematics (2015) Inflation is a significant issue that is cared by every segment of society but especially by economists since it plays an important role in the economic problems of countries. In Turkey, inflation has been a substantial problem since 1970s. There is no stability at inflation rates from that time to 2003. The Central Bank of the Republic of Turkey became independent and started to apply implicit inflation target regime at 2001. As a result of these improvements inflation was taken under control at 2004. Alth...
Pricing inflation indexed swaps using an extended hjm framework with jump process Karahan, Ceren; Hayfavi, Azize; Department of Financial Mathematics (2010) Inflation indexed instruments are designed to help protect investors against the changes in the general level of prices. So, they are frequently preferred by investors and they have become increasingly developing part of the market. In this study, firstly, the HJM model and foreign currency analogy used to price of inflation indexed instruments are investigated. Then, the HJM model is extended with finite number of Poisson process. Finally, under the extended HJM model, a pricing derivation of inflation ind...
Analysis of inflation dynamics in Turkey: a New Keynesian Phillips Curve approach Eruygur, Ayşegül; Erlat, Haluk; Department of Economics (2011) The main aim of this thesis is to explain the inflation dynamics in Turkey within a theoretically consistent empirical framework. The New Keynesian Phillips Curve (NKPC) is chosen as the basis model for our analysis because, by describing the inflation process within an intertemporal optimizing dynamic general equilibrium model, it provides a rigorous analytical groundwork for credible welfare and policy analysis. We have contributed to the literature by developing a NKPC formulation that is novel in the li...
An evaluation of the trilemma: global constraints on monetary policies of developing countries in the post Bretton Woods era Tercioğlu, Remzi Barış; Cömert, Hasan; Department of Economics (2016) This study investigates monetary policy independence of developing countries in the context of the trilemma concept in the post Bretton Woods Era. Throughout the thesis, multidirectional effects of financial flows on monetary policies of developing countries are described and limits on effectiveness of the policy rate tool are discussed. As empirical evidence shows, global factors restrict central bank independence in developing countries and the policy rate tool is not effective enough in influencing long-...

Citation Formats

Y. Ö. Yılmaz, “Essays on trend inflation in the open-economy,” Thesis (Ph.D.) -- Graduate School of Social Sciences. Economics., Middle East Technical University, 2020.