Export performance depends not only on current economic conditions but also on firms' expectations about future market developments. This study examines the asymmetric effects of export expectations and exchange rate dynamics on Türkiye's export performance. Using quarterly data for 2011Q1–2023Q3, we estimate a Nonlinear Autoregressive Distributed Lag (NARDL) model that decomposes export expectations and the real effective exchange rate into positive and negative changes, while controlling for exchange rate volatility. A key contribution of the study is the use of the Export Expectation Index derived from the quarterly Foreign Trade Expectation Survey conducted by the Ministry of Trade of the Republic of Türkiye. The survey covers a large and stable sample of firms that account for a substantial share of Türkiye's foreign trade. The Export Expectation Index summarizes their forward-looking assessments, with responses weighted by each firm's share in exports. The results of the analysis reveal clear asymmetries. Negative shocks to export expectations are followed by significantly higher export growth in subsequent periods, consistent with exporters postponing export activity under adverse expectations and expanding exports when conditions improve, while positive shocks have no significant effect. Real exchange rate appreciation significantly reduces exports, while depreciation does not generate comparable gains, consistent with the high import dependence of Turkish exports. Exchange rate volatility has only a weak negative effect. In the short run, export growth is driven mainly by external demand from the European Union, although negative expectation shocks remain significant. The findings are robust across alternative specifications and point to asymmetric adjustment under uncertainty. By jointly analyzing forward-looking firm expectations, exchange rate movements, and volatility, the study contributes new evidence on export behavior in emerging markets.
Persistent fiscal risks in advanced economies highlight the need for comprehensive tools to assess fiscal sustainability. We develop a multidimensional Fiscal Sustainability Index (FSI) comprising nine key fiscal and macroeconomic indicators, including government expenditure, external debt, government revenue, and real GDP growth rate, to evaluate fiscal sustainability across 37 OECD countries from 1995 to 2023. Using principal components analysis, the FSI captures the complex, dynamic interactions among fiscal flows, debt accumulation, and growth performance, offering a more comprehensive and timely assessment than conventional single-ratio indicators. Our results reveal substantial fiscal deterioration during the Global Financial Crisis and even greater vulnerabilities during the COVID-19 pandemic, especially in economies with high external debt. The FSI's multidimensional framework also captures feedback mechanisms and evolving fiscal pressures, enabling policymakers to monitor fiscal resilience effectively and formulate responsive macroeconomic policies amid global shocks. This study advances fiscal surveillance by highlighting the multifaceted nature of fiscal sustainability and providing insights to support adaptive fiscal strategies in advanced economies.
Central banks must closely monitor household debt because it shapes aggregate spending behaviour and influences how households respond to economic shocks. The macroeconomic effects of such shocks depend not only on the overall level of household indebtedness, but also on the interest-rate sensitivity and maturity structure of household liabilities. High debt exposure can amplify changes in consumption, especially when borrowing costs rise or income conditions weaken. Against this background, this study examines the effect of monetary policy on household debt in the United States using quarterly data from 2005Q1 to 2025Q1. Furthermore, given the nonlinear nature of the variables, we use nonlinear approaches, including wavelet quantile regression (WQR) and wavelet quantile correlation (WQC). The ADF and PP results validate each other, showing evidence of stationarity. The findings reveal that policy interest rate hikes have weak short-run effects but strong, medium- and long-term debt-constraining impacts on highly leveraged households. Conversely, increases in the money supply lead to widespread increases in household debt, particularly for the most highly leveraged households, aligning with liquidity-driven credit cycles. Exchange rate depreciation has no immediate effect on household debt but is positively associated with long-term debt accumulation among highly leveraged households, primarily due to imported inflation and liquidity substitution. Consumption expenditure shows a strong positive co-movement with household debt across most debt quantiles and time horizons, whereas capital formation is linked to increased debt only in the long run. Wavelet quantile coherency estimates confirm these trends, highlighting larger and more persistent co-movements between monetary variables and household debt in the medium-to long-term frequencies. Based on the study's findings, recommendations for practical policy decision-making are derived from the broad research results to guide relevant stakeholders and decision-makers in pursuing more effective monetary policy for managing household debts.
Financial systems support investment and economic growth, but they remain vulnerable to nonlinear stress and contagion. This review examines 23,447 peer-reviewed publications on financial stability from 1908 to 2024. It combines topic modeling, bibliometric mapping, and structured expert validation to identify seven themes: risk factors, policy and regulation, crisis and contagion, institutional and market dynamics, emerging trends and technologies, measurement and analysis tools, and cross-cutting influences. The findings show that shocks can arise from different sources but often intensify through four recurring transmission mechanisms: deteriorating funding conditions, declining collateral values, leverage constraints, and changes in risk premia. The review further shows that measurement practices and technological infrastructures shape incentives, information flows, and the speed at which stress can spread across the financial system. The thematic structure was assessed using alternative model specifications, coherence measures, bibliometric evidence, and expert review. The findings have direct implications for financial-stability policy. Macroprudential buffers and liquidity facilities should be calibrated to the main transmission mechanisms through which vulnerabilities can intensify. Supervisory frameworks should encompass relevant non-bank and digital intermediaries. Surveillance systems should also provide timely and interpretable information to support intervention when risks build across markets and institutions. The review identifies market-based finance, central bank digital currencies (CBDCs), stablecoins, and climate-related risks as priority areas requiring more integrated treatment in financial-stability research and policy. Overall, the study consolidates a fragmented body of research, identifies priorities for future inquiry, and treats financial stability as a dynamic condition requiring continued monitoring, adaptation, and coordination.
In this study, we examine a novel role of indirect taxes in moderating the effects of crude oil price shocks on economic performance. While higher oil prices are typically expected to harm oil-importing economies, our findings show that they can have a favorable impact through indirect taxes on oil products. Using a block-exogeneity VAR model tailored to Türkiye's small open economy, characterized by high indirect taxes that account for 63% of total tax revenues, and monthly data from January 2006 to February 2024, we analyze the effects of crude oil price shocks on the current account, exchange rate, capital account, government spending, borrowing, and borrowing costs. The evidence indicates that higher crude oil prices raise indirect tax revenues, thereby reducing government borrowing and borrowing costs. Moreover, the empirical results suggest that, in the absence of an indirect tax response (i.e., if indirect taxes were zero or held constant), oil prices would not have a statistically significant effect on the current account deficit. This study is among the first to quantify this mechanism and shows that strategic fiscal design, combined with high indirect taxes on oil products, can strengthen budget balances, lower borrowing costs, reduce sovereign risk premiums, and enhance economic stability.
This study examines how artificial intelligence (AI) has entered and evolved within the official communication of central banks. Using an archive of central bankers’ speeches covering 1996–2024, we develop a multi-stage NLP framework that combines an AI–finance lexicon validated by a fine-tuned transformer model, sentiment analysis, and structural topic modeling with temporal and country covariates. We identify 1032 AI-related speeches and show that AI discourse was marginal before the mid-2010s, rose sharply during the fintech wave of 2017–2018, and accelerated again with the emergence of generative AI in 2023–2024. Central banks frame AI primarily in positive and neutral terms, while caution is concentrated around generative AI, model governance, cyber threats, and supervisory accountability. Topic modeling reveals ten stable AI-centered themes spanning sustainability, cyber risk, payments, supervision, productivity, policy analysis, monetary transmission, and fintech experimentation. The findings suggest that AI has become a policy-relevant element of central bank communication, through which monetary authorities signal institutional readiness, frame emerging risks, and guide expectations in a rapidly changing financial system.
This study examines whether the verbal communication of the Central Bank of the Republic of Türkiye (CBRT) affects the inflation expectations of economic agents in Türkiye. Leveraging a large language model (i.e. ChatGPT), the analysis quantifies the verbal surprise tightness embedded in the press releases on interest rates of CBRT between January 2015 and December 2025, a period of persistently high and volatile inflation, conditional on contemporaneous economic variables and policy rates. Then, the estimated measure of surprise is incorporated into an empirical framework to assess its impact on the inflation expectations of different economic agents while controlling for relevant macroeconomic and financial variables. The results yield four main findings. First, the behavior of economic agents is in line with the demand-side view, in which the communicated tighter policies are anticipated to decrease the inflation expectations. Second, the effect of central bank communication in Türkiye is shaped by the surrounding policy context. When the gap between the inflation rate and the target widens, its influence is often limited or reversed; however, it becomes more consistently disinflationary when it operates within a credible monetary tightening process. Third, the effects vary considerably across groups, with the transmission of communication emerging first among market participants, then among firms, and only later among households. Fourth, communication is not effective in isolation. Its impact is strongest when it is supported by coherent policy actions and accompanied by realized disinflation.
Recent studies suggest that the Phillips Curve has become steeper in the post-Covid19 period. These studies used data from advanced economies and identified several factors for this phenomenon, including high inflation and de-globalization. These factors, however, are highly heterogeneous across countries depending on their characteristics. This begs the question of whether the post-pandemic Phillips Curve steepening is universal or nuanced among countries with certain attributes. Using data from 56 economies of varying income levels and characteristics, this study finds that, on average, the Phillips Curve steepened after the pandemic. However, there are important nuances to this finding. This study also shows that the steepening of the Phillips Curve in the post-pandemic period is stronger among economies i) that experienced a larger increase in inflation post-Covid19, ii) whose unemployment gap declined or barely grew in the post-pandemic period, and iii) whose trade intensity decreased or barely increased after the Covid19 period. The post-pandemic steepening of the Phillips Curve is also observed when output gap was used to measure slack and when core inflation was used instead of headline inflation, albeit there are some differences on the drivers of post-pandemic steepening with these specifications.
This paper examines how uncertainty and monetary policy credibility affect economic activity and inflation expectations in Brazil. We use Bayesian Vector Autoregression (BVAR) models with sign restrictions to identify structural shocks, based on monthly data from 2003 to 2022. The results indicate that an uncertainty shock generates inflationary pressures and contractionary effects on productive activity. In contrast, an increase in the credibility indicator leads to higher output growth rates and lower inflation. Additionally, our model shows that uncertainty and credibility do not significantly affect each other, suggesting a limited interaction between macroeconomic uncertainty and the perceived credibility of the Brazilian Central Bank's monetary policy over the analyzed sample.
This study investigates the dynamic relationship between government revenue shocks and key financial market indicators in Tanzania, focusing on interest rates, exchange rates, and short- and long-term bond yields. Using quarterly time-series data from 2003 to 2024, the analysis employs both standard and rolling-window Granger causality tests to examine how fiscal changes influence financial market responses in real time. The findings reveal a unidirectional causality running from government revenue to financial indicators, with notable variations across economic cycles. Specifically, revenue shocks significantly impact short-term interest rates, exchange rate movements, and 2-year bond yields, while their effect on 10-year yields is limited and inconsistent. Reverse causality from revenue to financial indicators is not supported. These results underscore the importance of credible and stable revenue mobilization policies in maintaining financial market stability. The study provides new empirical evidence for fiscal-monetary coordination in Tanzania and highlights the evolving nature of fiscal signal transmission across different macro-financial environments.
This study quantifies the impact of exchange rate fluctuations on Türkiye's export performance using detailed administrative data for 2009–2023. A 1 percentage point (pp) appreciation of the real exchange rate reduces total exports by about 0.50 pp, mainly through a 0.42 pp decline in export volume and a modest 0.04 pp decrease in dollar-denominated prices, indicating limited pass-through. Effects vary widely: larger and more productive firms are more resilient due to pricing flexibility, economies of scale, and market diversification, while SMEs and financially constrained firms face steeper declines. Manufacturing firms—large and small—are less sensitive, benefiting from higher value-added production and inelastic demand. Among highly leveraged firms, those at the top of their sectors show no significant pricing response, reflecting limits to pricing-to-market. These results underscore the role of firm characteristics and sectoral structure in shaping the trade effects of currency movements.
Purchasing Power Parity (PPP), a cornerstone of international economics, has undergone extensive empirical scrutiny and theoretical refinement since its inception. Despite its limitations, it remains a vital analytical framework. Historically, it provided benchmarks for exchange rate equilibrium during periods of monetary instability; today, it is instrumental for international comparisons by organizations like the United Nations and the International Monetary Fund (IMF), particularly in assessments such as the GDP comparison between China and the United States. This enduring relevance underscores the importance of rigorously testing its validity in contemporary contexts, especially for dynamically evolving economies like China. Aligning with modern methodological advances, this study moves beyond static tests by employing a Stochastic Volatility Time-Varying Parameter Factor-Augmented Vector Autoregression (SV-TVP-FAVAR) model. This dynamic framework is applied to empirically assess the validity of PPP for the Renminbi against the U.S. dollar (RMB/USD) from the first quarter of 1997 to the second quarter of 2025. The model's key strength lies in its capacity to capture evolving economic relationships while systematically incorporating a broad spectrum of macroeconomic information through latent common factors, thereby mitigating omitted variable bias. The extracted factors demonstrably track major real-world economic fluctuations, confirming their representative power. The selected sample period is comprehensive, encompassing pivotal events including exchange rate reforms, global financial crises, and recent health emergencies, which ensures the robustness and general relevance of the findings.
The persistence of inflation in both advanced and emerging economies calls for a deeper understanding of the underlying mechanisms. This study presents an agent-based model that examines the interaction between market structures, pricing behavior, and expectations in shaping inflationary outcomes. The model encompasses firms, consumers, the central bank, and investors, and examines the interactions of these agents under external shocks, including supply chain disruptions, energy price fluctuations, and trade policy changes. Firms set prices according to their cost structures and profit margins, while consumers dynamically adjust their consumption patterns and inflation expectations. The central bank responds to inflation deviations by adjusting interest rates, while investors reallocate wealth according to market conditions. The parameterization of key economic variables allows for a variety of simulations and provides insights into inflation management. Simulation results illustrate the nonlinear and feedback-driven nature of inflationary dynamics. Moreover, the study contributes to economic policy debates by showing how central bank interest rate interventions affect inflation. The paper not only highlights new perspectives that ABM offers for macroeconomic stability and policy design, with implications for future research directions, but also explores how inflation evolves in the face of various shocks and how the central bank responds to these inflation shocks through inflation targeting.
The impact of public status on the performance of non-financial Turkish firms during the COVID-19 pandemic is analyzed using a quasi-experimental design that combines propensity score matching (PSM) with difference-in-differences (DiD). Firm performance is evaluated across four dimensions: liquidity, profitability, leverage, and efficiency. The results indicate that public firms outperformed their matched private counterparts during the pandemic. When examined by firm size, public SMEs are observed to have performed significantly better than private SMEs, whereas no statistically significant differences are found between large public and large private firms. Despite extensive government support for all SMEs through stimulus packages and credit facilities, the findings suggest that public status conferred additional advantages that enhanced SME resilience during the crisis. Moreover, the public SMEs were also able to expand their assets, exhibit higher investment ratio and lower default rates. The results remain robust across alternative specifications and falsification tests, reinforcing the credibility of the evidence and underscoring the importance of public equity markets in strengthening firm resilience during systemic shocks.
This paper calculates the contribution of the reallocation of capital and labor to aggregate TFP for the 2000–2024 period in the Turkish economy. While the reallocation effect is generally positive for labor (except for crisis years), there are two separate periods for capital. In the period 2000–2014, the reallocation effect for capital is positive, while in the period 2015–2024 it became consistently negative. The paper also takes into account improvements in schooling over time while calculating sectoral TFP growth. Leaving aside the crisis periods of 2000–2002 and 2008–2010, I find that the TFP growth is positive in the 2003–2007 and 2011–2014 periods. However, aggregate TFP growth is almost zero in the 2015–2024 period where there is no economic crisis. TFP growth is very volatile and low on average in the construction sector. The services sector is characterized by negative TFP growth. Agriculture has the smoothest trends and the highest average TFP growth.
Economic complexity is an indicator that measures the diversity and sophistication of the production structure of a country's economy. This concept is an important tool for economic development and international competitiveness. This study investigates the long-run effects of digitalization, industrialization, financial freedom, and institutional quality on economic complexity within the E−7 countries (Brazil, China, India, Indonesia, Mexico, Russia, and Türkiye) from 1995 to 2021. Employing panel cointegration analysis through the Durbin-Hausman approach and long-run estimation via the Augmented Mean Group estimator, the study accounts for cross-sectional dependence and slope heterogeneity. The results reveal heterogeneous dynamics across countries: Digitalization increases complexity in China and Türkiye while reducing it in Brazil, Indonesia, and Russia. Industrialization positively contributes to complexity in Brazil and Türkiye, whereas financial freedom exhibits positive effects in Indonesia, Mexico, and Russia but negative in China and India. Institutional quality reduces economic complexity in Brazil and Mexico, but increases it in Turkey. These findings highlight the context-dependent nature of structural transformation and underscore the importance of aligning national digital, industrial, and financial strategies with institutional reforms. The study contributes to the literature by offering a multidimensional empirical assessment of complexity determinants within an emerging economy context. As a policy recommendation, targeted reforms that strengthen institutional governance and enable productive digital and industrial ecosystems are essential to unlocking complexity-driven development in E−7 economies.
The article estimates the effectiveness of tightening borrower-, capital-, and liquidity-based tools in decreasing the cyclical component of housing price growth and the probability of housing price booms with and without a low interest rate environment. The estimate is based on quarterly data for 41 countries from 2000 Q1 to 2021 Q4. We use the local projections approach to estimate a linear panel model and a logit model. The results highlight the critical role of a low interest rate environment in the design of macroprudential policy tools. In a low interest rate environment, tightening of borrower-based tools raises the probability of housing price booms over the period studied. However, in the absence of a low interest rate environment, borrower-based tools are more effective for decreasing the probability of housing price booms than other tools. Tightening of capital-based tools is moderately effective in lowering the probability of housing price booms in the absence of low interest rates, but in a low interest rate environment, it increases the probability of housing price booms in the first year of the horizon. Lastly, tightening of liquidity-based tools does not have a significant effect on the probability of housing price booms, regardless of interest rates.
This study aims to evaluate the transmission mechanisms of monetary policy in a post-communist economy using structural vector autoregression (SVAR) model. We constructed two SVAR models employing both recursive and non-recursive approaches to identify monetary policy shocks and analyze how other variables in the system respond to these shocks. The findings of the study are as follows: First, the recursively identified structure produced price and exchange rate puzzles, where output and inflation reacted to unexpected monetary policy shocks in a manner inconsistent with theoretical expectations. Second, a non-recursive structure under zero contemporaneous restrictions was applied to address the anomalies found with the recursive scheme. The non-recursive model generated outcomes that resolved both the price and exchange rate puzzles. Third, the exchange rate is more responsive to monetary policy disturbances than interest rates in the non-recursive model, as reflected by impulse response functions (IRFs), leading us to conclude that the exchange rate channel operates more effectively than the interest rate channel in Uzbekistan.
This paper investigates how households’ financial literacy influences their perceptions of past inflation and expectations of future price changes. Using novel survey data collected in Ukraine, we employ instrumental variable quantile regression models across various household subsamples to assess the asymmetric and heterogeneous effects of financial literacy on inflation-related beliefs. We find that the impact of financial literacy varies significantly across the distributions of inflation perceptions and expectations, shaped by distinct components – knowledge, behavior, and attitude – as well as by household characteristics such as size, income level, and place of residence. We also find that trust in the banking system enhances the accuracy of inflation beliefs, with a stronger effect as perceptions and expectations deviate from benchmarks. These findings have important implications for central banks seeking to anchor inflation expectations.
This paper analyzes how unexpected oil supply shocks shape firms’ inflation expectations and real activity using a dataset of Turkish manufacturing firms. At the aggregate level, oil supply shocks significantly increase both actual CPI inflation and firms’ average inflation expectations, with effects persisting for up to 15 months. Our firm-level analysis reveals substantial heterogeneity: smaller and highly leveraged firms respond more strongly to oil shocks, significantly raising their expectations for inflation, own prices, and unit costs compared to larger, financially robust firms. Furthermore, these shocks worsen firms’ business outlook and lead to tangible reductions in capacity utilization. Leveraging administrative firm-to-firm transaction data, we show that oil shocks also reduce firms’ sales, purchases, and the number of trading partners — particularly among financially constrained firms — highlighting real dislocations that propagate through production networks. In contrast, carbon price shocks and global temperature changes have no significant impact, consistent with the absence of a binding carbon pricing mechanism in Türkiye during the study period. Our findings highlight oil supply shocks as a crucial driver of firm-level expectations and real activity, emphasizing the importance of incorporating energy-cost dynamics into inflation-targeting frameworks.
