Resume

• 2000

  Master of Arts (M.A.)

  Economics

  University of Virginia

  Doctor of Philosophy (Ph.D.)

  Economics

  University of Virginia

• 1996

  Bachelor of Arts (B.A.)

  Economics

  Bilkent University

• Policy Analysis

  Macroeconomics

  Theory

  Microeconomics

  Financial Modeling

  Data Analysis

  International Finance

  Higher Education

  Quantitative Analytics

  Matlab

  Monetary Economics

  Statistics

  Economics

  Teaching

  Microsoft Excel

  Time Series Analysis

  Econometrics

  University Teaching

  Economic Research

  Academic Advising

  Macroeconomic stabilization in developing economies: Are optimal policies procyclical?

  Many empirical studies provide evidence that macroeconomic policies as well as capital flows exhibit procyclical characteristics in developing economies. In particular Kaminsky et al. [2004. When it rains

  it pours: Procyclical capital flows and macroeconomic policies. NBER Macroeconomics Annual

  MIT Press] demonstrate that a large group of middle-income countries run contractionary policies and experience capital flight during times of recession. This paper investigates the role of international financial markets in explaining these macroeconomic policy and capital flow characteristics. An optimal fiscal and monetary policy problem is formulated and solved for a small-open economy that faces a country-specific interest rate spread in international financial markets. It is found that

  in the presence of the country spread

  optimal fiscal and monetary policies as well as capital flows are procyclical under a reasonable parametrization. Optimal policies and capital flows turn countercyclical in the absence of the country spread. This pattern is robust to a range of alternative model specifications.

  Macroeconomic stabilization in developing economies: Are optimal policies procyclical?

  A central finding of the previous monetary policy research is that commitment to a policy rule results in substantial welfare gains. In this paper

  I reevaluate the value of monetary policy commitment in an environment where monetary and fiscal policies are conducted by separate branches of the government. I find that welfare gains from monetary policy commitment can be small if the fiscal authority can exercise a certain degree of commitment on his own. I also find that a moderate improvement in fiscal credibility can substantially reduce the welfare gains from full commitment in monetary policy under monetary leadership. Under fiscal leadership

  the degree of fiscal credibility does not affect the welfare gains from monetary commitment.

  The Value of Monetary Policy Commitment under Imperfect Fiscal Credibility

  This study documents the cyclical properties of business credit in the U.S. and in the Euro area and constructs a theoretical model that can successfully replicate the observed characteristics. I find that real business loans lag output

  i.e.

  business credit is more strongly correlated with past output than with current output. Furthermore

  real business loans correlate negatively with future output and investment and positively with past output and investment. I show that a fairly standard model of business and credit fluctuations with agency costs can neither generate the lagging behavior of business credit nor can it induce the observed cross-correlation patterns of output

  investment

  and business loans. I introduce a costly financial intermediation mechanism to an otherwise standard macroeconomic framework and show that the evolution of intermediary balance sheets and interaction of intermediation and agency costs can induce the observed regularities.

  On the Cyclicality of Credit

  This paper investigates the implications of external indebtedness and international financial integration on the effects of foreign interest rate shocks in a small-open economy. The empirical component of the analysis quantifies the effects of U.S. interest rate shocks on the Turkish economy. The theoretical component constructs a business cycle model that can successfully match the empirical impulse response functions. The model is estimated on quarterly Turkish data. It is found that the relationship between financial integration and macroeconomic volatility due to foreign interest rate shocks depends on the level of outstanding external debt. Financial integration mitigates the economy's responses to foreign rate shocks for higher levels of external debt and it magnifies the responses for lower levels of external debt.

  The Transmission of Foreign Interest Rate Shocks to a Small-Open Economy: The Role of External Debt and Financial Integration

  Studies that evaluate the effects of technology shocks often employ structural VARs identified with long‐run restrictions. In the presence of a mismatch between the lag structures of the true data‐generating process and the adopted VAR

  estimates based on long‐run restrictions can be biased. This paper offers a method that can reduce this bias substantially. Using artificial data

  I assess the performance of the proposed method and find that it can outperform a range of alternative procedures. Applying the procedure to the US data

  I find that per‐capita hours exhibit a positive hump‐shaped response profile in response to a technology shock.

  Identification of Technology Shocks Using Misspecified VARs

  This study proposes an alternative procedure to identify technology shocks using vector autoregressions (VARs). The proposed procedure delivers improved small-sample properties relative to the standard long-run identification method provided that the dynamics of the observed variables can only be captured precisely by an infinite-order VAR. Monte Carlo experiments on artificial data produced by a standard version of the real business cycle model demonstrate that the proposed procedure is associated with smaller average bias and mean square error. These results obtain under a range of specifications regarding the share of technology shocks in overall output variability.

  On the Identification of Technology Shocks: An Alternative to the Standard Long-Run Method

  Many empirical studies find robust evidence that marginal cost of production directly depends on the nominal rate of interest. This relationship induces a cost channel for monetary policy transmission. Although the empirical literature provides ample evidence for a cost channel

  studies that evaluate the welfare gains from monetary policy commitment have so far entirely ignored its presence. This study shows that

  overlooking the cost channel

  one significantly underestimates the welfare gains from monetary policy commitment. I find that there is a robust positive relationship between the size of the cost channel and welfare gains from monetary policy commitment. Using a version of the new Keynesian model calibrated to the US economy

  I find that failure to take into account the presence of a cost channel leads to an understatement of the gains from monetary policy commitment by an amount equivalent to a 0.48 percentage points permanent cut in quarterly inflation.

  Gains from Commitment in Monetary Policy: Implications of the Cost Channel

  This paper studies optimal monetary policy in an economy where firms rely heavily on external funds to finance operational costs. In the model

  financial contracts are subject to agency problems and firms can possibly default on borrowed funds. Financial frictions have two separate effects on the model. First

  they introduce an indirect cost channel to the monetary transmission mechanism. Second

  they exacerbate the welfare costs of output gap fluctuations. The indirect cost channel implies that a given reduction in inflation can be achieved with a smaller output loss. This effect encourages the policy maker to emphasize inflation stabilization. At the same time

  agency costs also make output gap fluctuations more costly in terms of economic welfare. This second effect encourages the policy maker to place more emphasis on output gap stabilization. Whether the optimal policy requires greater inflation stabilization or output gap stabilization depends on the balance of these two effects. Under a reasonable parametrization

  the first effect dominates the second and the optimizing policy maker adopts a stricter anti-inflationary stance.

  Optimal Monetary Policy in a Financially Fragile Economy

  Demirel

  University of Virginia

  Congressional Budget Office

  University of Colorado at Boulder

  Washington D.C. Metro Area

  Chief

  Fiscal Policy Studies Unit

  Congressional Budget Office

  University of Colorado at Boulder

  Economist

  Washington

  D.C.

  Congressional Budget Office

  Instructor

  University of Virginia