This paper investigates the impact of global financial conditions, US macroeconomic news and domestic macroeconomic fundamentals on the evolution of EMBI spreads for a panel of 18 emerging market (EM) countries using daily data. To this end, we employ not only the conventional panel data estimation procedures but also the recently developed common correlated effects panel mean group method which incorporates heterogeneity by allowing country-specific coefficients whilst accounting for the effects of common global shocks such as contagion. The results strongly suggest that the long-run evolution of EMBI spreads depends on external factors such as changes in global liquidity conditions, risk appetite and crises contagion. Domestic macroeconomic fundamentals proxied by sovereign country ratings are also found to be important in explaining the spreads. The results from panel equilibrium correction models suggest that EMBI spreads respond substantially also to US macroeconomic news and changes in the Federal Reserve's target interest rates. The magnitude and the sign of the effect of US macroeconomic news, however, crucially depend on the state of the US economy, such as the presence of an inflation dominance.

No abstract

The paper investigates the long-run relationships between budget deficits, inflation and monetary growth in Turkey considering two alternative trivariate systems corresponding to the narrowest and the broadest monetary aggregates. While the joint endogeneity of money and inflation rejects the validity of the monetarist view, lack of a direct relationship between inflation and budget deficits makes the pure fiscal theory explanations illegitimate for the Turkish case. Consistent with the policy regime of financing domestic debt through the commercial banking system, budget deficits lead to a growth not of currency seigniorage but of broad money in Turkey. This mode of deficit financing, leading to the creation of near money and restricting the scope for an effective monetary policy, may not be sustainable, as the government securities/broad money ratio cannot grow without limit.

In this study, we investigate the causes and balance sheet effect consequences of Liability Dollarization (LD) of nonfinancial sectors in Turkey. The dynamic panel data Generalized Method of Moments (GMM) results suggest that both sector specific and macroeconomic variables are significant in explaining the corporate sector LD. Industries appear to partially match the currency composition of their debt with their income streams. Devaluations are found to be contractionary, in terms of investments and profits, for sectors with higher LD. Macroeconomic instability affects the performance of the industries negatively. Our results also stress the importance of strong macroeconomic policy stance for an endogenous dedollarization process.

This paper empirically investigates the impacts of domestic and external factors along with exchange rate regimes (ERRs) on business cycles in a large panel of advanced and emerging market economies (EME). The results for classical business cycles suggest that EME tend to experience much deeper recessions and relatively steeper expansions during almost the same duration. The probability of expansions significantly increases with ERR flexibility. Our results strongly support floating ERR for both advanced and EME other than the East Asian countries. The impacts of external real and financial shocks and domestic variables are significantly greater under managed regimes as compared to floats. Consistent with an argument that high saving rates enhance the ability of a country to maintain an ERR, managed regimes performs better only in the East Asian countries. Supporting the de-coupling literature, external cycles become insignificant for growth under flexible ERR. Our results strongly suggest that the evolution and determinants of both classical business and growth cycles are not invariant to the prevailing ERR.

No abstract

This paper investigates whether the Feldstein and Horioka (Economic Journal, 90, 314-329, 1980) argument on domestic saving-investment relationship is supported by the French data when an endogenous structural break corresponding to a major policy regime change is taken into account. The evidence suggests that the saving-investment cointegration disappears after the estimated endogenous structural break point in 1973 coinciding with the end of the Bretton Woods system of fixed exchange rates. Consistent with a current account targeting policy, an investment-driven saving process appears to be the case for the fixed exchange rate regime period.

This paper investigates whether the Feldstein and Horioka (1980) argument on domestic saving-investment relationship is supported by the data of the countries in the Middle East and North Africa (MENA) region when the financial development levels and exchange rate regimes are taken into account. To this end, we employ both the ARDL bounds cointegration test and panel mean group procedures. The results support the view that a successful international financial integration requires compatible levels of financial intermediation. The evidence also suggests that saving-investment cointegration is not invariant to exchange rate regimes.