Selva Demiralp

• Koc University

With the global rise in populism over the last decade, there has been an increase in political commentaries (PC) by leaders that criticize their central banks and argue for lower interest rates. We analyse the effects of PCs on exchange rates, bond yields, and the risk premium for six countries that are subject to political pressures. Utilizing a s...

This study examines patterns of voter defection from Turkey’s incumbent AKP amid major economic and democratic decline. As in other electoral autocracies, defectors constitute a small but politically significant group in Turkey, where the opposition’s ability to secure a transition from authoritarianism depends on reducing the incumbent’s vote shar...

Negative interest rate policy (NIRP) is associated with a particular friction. The remuneration of banks´ retail deposits tends to be floored at zero, which limits the transmission of policy rate cuts to bank funding costs. We investigate whether this friction affects banks’ reactions under NIRP compared to a standard rate cut in the euro area. We...

We investigate the effects of the financial crisis on the stationarity of real interest rates for a group of Euro area countries. We use a new unit root test developed by Pesaran et al. (J Econom 115(1): 53–74, 2013) that allows for multiple unobserved factors in a panel set up. In this multifactor framework, we make use of a number of additional v...

This paper investigates the effects of political commentaries on policy rate decisions and policy expectations in the United States and the euro area. The results suggest that political commentaries do influence policy rate expectations in both regions, even after controlling for macroeconomic releases and immediate interest rate expectations. Duri...

This study provides empirical analysis to show increasing pressures over the Central Bank of Turkey (CBT) throughout the past decade where the CBT gives into such pressures, despite the Central Bank Law, which ensures tool independence. The study suggests that the relations between the government and the CBT reflect recent political changes where t...

Although reserve requirements (RR) have been used in emerging markets to smooth credit cycles, the transmission mechanism remains blurry. Using bank‐level data, we unveil the interaction of RR with bank lending. We identify a new channel that works through a decline in banks’ liquid assets and loan supply due to an increase in RR. “Quantitative tig...

The extraordinary steps taken by governments during the 2007-2009 financial crisis to prevent the failure of large financial institutions and support credit availability have invited heated debate. This paper comprehensively reviews empirical assessments of the benefits of those programs—such as their effectiveness in reducing bank failures or supp...

In this article, we investigate economic and political developments in Turkey’s construction sector over the last decade and consider their implications. We find that during the first term of the government of the Justice and Development Party ( Adalet ve Kalkınma Partisi , AKP), thanks to administrative and economic incentives, both private and pu...

This paper investigates the effects of political commentaries on policy rate decisions and policy expectations in the United States and the euro area. The results suggest that political commentaries do influence policy rate expectations in both regions, even after controlling for macroeconomic releases and immediate interest rate expectations. The...

We analyze the role of federal funds rate volatility in affecting risk premium as measured by various money market spreads during the 2007–2009 financial crisis. We find that volatility in the federal funds market contributed to elevated Overnight Index Swap (OIS) spreads of unsecured bank funding rates during the crisis. Using OIS as a proxy for m...

Islamic banks create an interest in their own right as a rising branch in financial intermediation, particularly in the post-crisis era. In addition, they also deserve the attention of students of Islamism due to their possible connection with Islamic movements. Through a comparison of Islamic and conventional banking, we analyze the motivations an...

We extract an index of interest rate spreads from various money market segments to assess the level of funding stress in real time. We find that during the 2007–2009 financial crisis, money markets switched between low and high stress regimes except for brief periods of extreme stress. Transitions to lower stress regimes are typically associated wi...

Many central banks in emerging economies have used reserve requirements (RR) to alleviate the trade-off between financial stability and price stability in recent years. Notwithstanding their widespread use, transmission channels of RR have remained largely as a black-box. In this paper, we use bank-level data to explore the interaction between RR a...

A number of studies sought to measure the effects of non-standard policy on bank funding markets. This paper carries those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending. By separately modeling loan supply and demand, we determine how non-standard central bank measures affected bank le...

During the recent financial crisis, governments took extraordinary steps to inject capital and liquidity into the financial system to prevent the disorderly failure of multiple large financial institutions and to support the continued extension of credit to businesses and households. Those policies have invited heated debate about their wisdom and...

Asset purchases have become an important monetary policy tool of the Federal Reserve in recent years. To date, most studies of the Federal Reserve's asset purchases have tried to measure the interest rate effects of the policies. Several papers provide evidence that these programs do have important effects on longer-term market interest rates. The...

Asset purchases have become an important monetary policy tool of the Federal Reserve in recent years. To date, most studies of the Federal Reserve's asset purchases have tried to measure the interest rate effects of the policies. Several papers provide evidence that these programs do have important effects on longer-term market interest rates. The...

A growing number of studies have sought to measure the effects of non-standard policy on bank funding markets. The purpose of this paper is to carry those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending, using a simultaneous equation approach. By separately modeling loan supply and dema...

A growing number of studies have sought to measure the effects of non-standard policy on bank funding markets. The purpose of this paper is to carry those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending, using a simultaneous equation approach. By separately modeling loan supply and dema...

This paper assesses the effectiveness of monetary policy communication of the Central Bank of Turkey (CBT) by quantifying the information content of its policy statements released right after the monthly Monetary Policy Committee meetings. First, we quantify the signal regarding the next interest rate decision and ask whether communication improves...

This paper provides a dynamic analysis of the responsiveness of asset markets to monetary policy path revisions. In an era of increased transparency and gradualism in policy making, one might expect an increased response to path revisions in asset markets as the policy actions become more predictable over longer horizons. Using federal funds future...

Central banks typically control an overnight interest rate as their policy tool, and the transmission of monetary policy happens through the relationship of this overnight rate to the rest of the yield curve. The expectations hypothesis, that longer-term rates should equal expected future short-term rates plus a term premium, provides the typical f...

Central banks typically control an overnight interest rate as their policy tool, and the transmission of monetary policy happens through the relationship of this overnight rate to the rest of the yield curve. The expectations hypothesis, that longer-term rates should equal expected future short-term rates plus a term premium, provides the typical f...

This paper assesses the effectiveness of monetary policy communication of the Central Bank of Turkey (CBT) by quantifying the information content of the policy statements released right after the monthly Monetary Policy Committee meetings. First, we quantify the signal regarding the next interest rate decision and ask whether communication improves...

Bu çalışmada TCMB para politikası ile ilgili beklentilerin sermaye piyasaları üzerindeki etkisi incelenmektedir. Etkin piyasa hipotezinin (“efficient market hypothesis”) geçerli olması durumunda merkez bankası tarafından yapılan faiz kararı açıklamasını takiben sermaye piyasalarının sadece beklenmeyen politika kararlarına tepki vermesi beklenir. Çü...

With the use of nontraditional policy tools, the level of reserve balances has risen significantly in the United States since 2007. Before the financial crisis, reserve balances were roughly $20 billion whereas the level has risen well past $1 trillion. The effect of reserve balances in simple macroeconomic models often comes through the money mult...

With the use of nontraditional policy tools, the level of reserve balances has risen significantly in the United States since 2007. Before the financial crisis, reserve balances were roughly $20 billion whereas the level has risen well past $1 trillion. The effect of reserve balances in simple macroeconomic models often comes through the money mult...

In 2003, the Federal Reserve introduced primary credit as its main discount window lending program. This program replaced the adjustment credit program, which, subject to a number of restrictions, had generated a stigma associated with borrowing from the Federal Reserve. Lessening the stigma of borrowing was viewed as essential for reducing the rel...

Bu calismada TCMB para politikasi ile ilgili beklentilerin sermaye piyasalari uzerindeki etkisi incelenmektedir. Etkin piyasa hipotezinin (“efficient market hypothesis”) gecerli olmasi durumunda merkez bankasi tarafindan yapilan faiz karari aciklamasini takiben sermaye piyasalarinin sadece beklenmeyen politika kararlarina tepki vermesi beklenir. Cu...

The M2 monetary aggregate is monitored by the Federal Reserve, using a broad brush theoretical analysis and an informal empirical analysis. This paper illustrates empirical identification of an eleven-variable system, in which M2 and the factors that the Fed regards as causes and effects are captured in a vector autogregression. Taking account of c...

Professors Erhan Artuç and Selva Demiralp of Koç University, Turkey, investigate whether changes to the Federal Reserve’s discount window borrowing facility represent a shift in how the nation’s central bank traditionally provided liquidity through the primary credit facility as well as whether the Fed would benefit from retaining these changes ind...

The price puzzle is the association in a structural vector autoregression (SVAR) of a contractionary shock to monetary policy with persistent increases in the price level. Various explanations have been investigated separately in the framework of small SVARs without any common set of variables and with ad hoc and casually justified identification s...

Over the course of the recent liquidity crisis, the Federal Reserve made several changes to its primary credit lending facility such as narrowing the spread between the primary credit rate and the target funds rate, increasing the terms of lending, and widening the range of acceptable collateral. In this paper, we use the model developed by Artuc a...

Graph-theoretic methods of causal search based on the ideas of Pearl (2000), Spirtes et al. (2000), and others have been applied by a number of researchers to economic data, particularly by Swanson and Granger (1997) to the problem of finding a data-based contemporaneous causal order for the structural vector autoregression, rather than, as is typi...

Bu çalışma Türkiye’deki parasal aktarım mekanizmasında para’nın rolünü incelemektedir. Çalışmamız Carpenter ve Demiralp (2007)’in yapmış olduğu araştırmayı bütünleyici niteliktedir. Carpenter ve Demiralp (2007) gelişmiş finansal piyasalarada banka kredilerinin zorunlu karşılığa tabi olmayan “kontrollü pasifler” (“managed liabilities”) ile finanse e...

In this paper we test the expectations hypothesis empirically by analyzing changes in three month Treasury rates after FOMC meetings. If the expectations hypothesis holds, then there should be a one-to-one relationship between changes in the T-Bill rate and changes in path revisions over the duration of the contract. Testing this claim requires an...

In this paper, we argue that much of the research into the link between money and interest rates suffers from misspecification. The measure of money and the measure of interest rates are not always well matched. In examining the transmission of monetary policy, we show that using an appropriate measure of money, Federal Reserve balances, and the ap...

In January 2003, the Federal Reserve introduced primary credit as its main discount window lending program. The primary credit program replaced the adjustment credit program, which, subject to a number of restrictions, had generated a stigma associated with borrowing from the Fed. Eliminating or lessening the stigma of borrowing was viewed as essen...

We introduce a new hybrid approach to joint estimation of Value at Risk (VaR) and Expected Shortfall (ES) for high quantiles of return distributions. We investigate the relative performance of VaR and ES models using daily returns for sixteen stock market indices (eight from developed and eight from emerging markets) prior to and during the 2008 fi...

Central banking transparency is now a topic of great interest, but its impact on the implementation of monetary policy has not been studied. This paper documents that anticipated changes in the target federal funds rate complicate open market operations. We provide theoretical and empirical evidence on the behavior of banks and the Open Market Trad...

We use forecast errors made by the Federal Reserve while preparing open market operations to identify a liquidity effect at a daily frequency in the federal funds market. We find a liquidity effect on most days of the reserve maintenance period in addition to settlement day. The effect is nonlinear; large changes in supply more consistently have a...

We use forecast errors made by the Federal Reserve while preparing open market operations to identify a liquidity effect at a daily frequency in the federal funds market. Unlike Hamilton (1997), we find a liquidity effect on many days of the reserve maintenance period besides settlement day. The effect is non-linear; large changes in supply have a...

In February 4, 1994 the Federal Reserve began the practice of announcing changes in the targeted level for the federal funds rate immediately after such decisions were made. This paper investigates to what extent the policy of "the announcement" affected a key ingredient in the monetary transmission mechanism: the term structure of nominally risk-f...

This paper investigates transactions and interest rates on brokered and direct trades in federal funds, Eurodollar transactions, and repurchase agreements, all of which are used by banks in overnight funding. We expand on earlier work on calendar-day effects in these markets, investigating also volumes of funding in recent years. Our data include d...

We use forecast errors made by the Federal Reserve while preparing open market operations to identify a liquidity effect at a daily frequency in the federal funds market. We find a liquidity effect on most days of the reserve maintenance period in addition to settlement day. The effect is nonlinear; large changes in supply more consistently have a...

We provide an accessible introduction to graph-theoretic methods for causal analysis. Building on the work of Swanson and Granger (Journal of the American Statistical Association, Vol. 92, pp. 357–367, 1997), and generalizing to a larger class of models, we show how to apply graph-theoretic methods to selecting the causal order for a structural vec...

The standard view of the monetary transmission mechanism rests on the central bank's ability to manipulate the overnight interest rate by controlling reserve supply. In the 1990s, there was a significant decline in the level of reserve balances in the US accompanied at first by an increase in federal funds rate volatility. However, following this i...

The standard view of the monetary transmission mechanism rests on the central bank's ability to manipulate the overnight interest rate by controlling the reserve supply. In the 1990s, there was a significant decline in the level of reserve balances in the U.S. accompanied at first by an increase in the funds rate volatility. However, following this...

Vector autoregressions (VARs) are economically interpretable only when identified by being transformed into a structural form (the SVAR) in which the contemporaneous variables stand in a well-defined causal order. These identifying transformations are not unique. It is widely believed that practitioners must choose among them using a priori theory...

The Federal Reserve (Fed) has maintained a general trend toward increased transparency and gradualism. This paper investigates the implications of these historical developments for the anticipation of monetary policy actions and adjustment of interest rates. In a theoretical framework, we establish the Fed's ability to manipulate overnight rates vi...

This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...

The traditional view of the monetary transmission mechanism rests on the premise that the Federal Reserve (Fed) controls the level of the federal funds rate via open market operations and the liquidity effect. By contrast, this paper argues that the Fed also manipulates the federal funds rate via public disclosures of the new level of the federal f...

This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...

The traditional view of the monetary transmission mechanism rests on the premise that the Federal Reserve (Fed) controls the level of the federal funds rate via open market operations and the liquidity effect. By contrast, this paper argues that the Fed also manipulates the federal funds rate via public disclosures of the new level of the federal f...

The traditional view of the monetary transmission mechanism rests on the premise that the Federal Reserve (Fed) has full control over overnight rates via open market operations. By contrast, this paper tries to establish empirically the Fed's ability to manipulate overnight rates via "announcement" effects. In this paper, announcement effects are d...