Essays on Credit and Reserves

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2022-6

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Düzçay, Güney

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This thesis consists of three separate essays that concern some challenges in the monetary sphere of developing countries. The theme of the first essay is the low level of credit creation capacity in developing countries. It focuses on a particular impediment on the credit creation capacity, which is the hierarchical nature of monetary (financial) instruments. The concept of the hierarchy of money is put to use in order to discuss the structural forces that constrain domestic currency denominated credit creation and lead to massive foreign exchange reserves accumulation. The theme of the second essay is the identification of credit booms, which are arguably the most prominent cause of severe financial distress episodes and crises. This essay particularly concentrates on the time-specific aspects of credit booms and develops a modified method for credit boom identification with that purpose. Then, this novel method is applied for a large data set with the purposes of documenting the time-specific and country-group characteristics of credit booms and their relationships with banking crises. The third essay is related to the reserve management and strategic asset allocation for central banks in developing countries. This essay focuses on developing an alternative framework for strategic asset allocation among multiple currencies by using common portfolio optimization methods. It suggests using a basket-currency (consisting of major currencies) as a numeraire by providing a formulation for constructing a basket with desired properties, and then presents the performance of optimization results in comparison to general practices.

Subject Keywords

Credit Creation Capacity, Hierarchy of Money, Credit Booms, Strategic Asset Allocation, Mean Variance Optimization

URI

https://hdl.handle.net/11511/97810

Collections

Graduate School of Social Sciences, Thesis

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Citation Formats

G. Düzçay, “Essays on Credit and Reserves,” Ph.D. - Doctoral Program, Middle East Technical University, 2022.