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Thinking Inside the Box: Input−Output
Thu, Jul 10 2008, 09:24 GMT
by Yapi Kredi Bank Economic Research Department
Anyone who has an interest on the real side of Turkish economy might have encountered the famous sketch of industrial production and exports rising together from 2002 and onwards. The common interpretation of this relationship is that the manufacturing sector is becoming more outward-looking and exports are the main driver behind industrial growth.
Most of the time, no comment is made about imports and are omitted from the analysis, as if everyone has come to an agreement on the fact that an increase in industrial production will inevitably lead to an increase in imports. This is a strong argument since about two out of three dollars of import bill come from intermediate goods.
Very few studies have been conducted to identify and decompose the relationship between production, exports and imports at sector level mainly due to data limitations. Quantitative evidence on the structural link between industrial production and foreign trade for each sector would be a substantial policy (and simulation) tool for decision makers and analysts.
This study’s main objective is to calculate the backward linkages and import dependencies of industrial sectors before and after the crisis in 2001. Input-output tables are used for this purpose due to their usefulness as a “snapshot” of the whole economy. The compilation of IO tables is extremely difficult, since data requirements are enormous. Two recent tables are published for 1998 and 2002, and are appropriate for the aim of this analysis.
An input-output (IO) table provides a complete and consistent picture of the flows of products and services in the economy as a whole for a given year. The table illustrates the relationship between producers and consumers as well as interdependencies between industries (e.g. exchange of intermediate goods). One can also find detailed information on input purchases made by each sector in the economy including purchases of imported commodities and their contribution to Gross Domestic Product.
Published on Thu, Jul 10 2008, 09:24 GMT
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In the Quest for the Nexus of Financial Markets
Tue, Jun 17 2008, 09:16 GMT
by Yapi Kredi Bank Economic Research Department
It is known that various asset returns possess significant interrelations, and that financial returns and volatilities move together over time across assets and markets, since they are all part of a greater portfolio. In this manner, it is expected that there may be a correlation between the exchange rates, interest rates and the stock market in Turkey. Moreover, price movements in one market are also expected to spread to another. Therefore, the dynamic relationship between these three markets should be modeled within a multivariate framework.
Published on Tue, Jun 17 2008, 09:16 GMT
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World Commodity and Food Crisis: Trends and Expectations
Fri, May 9 2008, 15:36 GMT
by Yelda Yücel
Surge in commodity prices is a recent phenomenon and could be pushing the global economy into a new inflation spiral. Currently, the problem seems to be receiving less attention than the financial crisis that stemmed from the sub-prime market in the US. Although discernibly impacted by channeling of recently increased liquidity into commodity markets in a speculative fashion, price increases reflect certain structural weaknesses in global economy and thus threaten global price stability. An absolute hunger risk in underdeveloped economies, as expressed by myriad high level bureaucrats, is a side issue that could receive more attention going forward. Expectations for price corrections are also mixed and differ according to the specific features of the commodity in question.
Published on Fri, May 9 2008, 15:36 GMT
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What's next for YTL/$ rate?: Let's simulate!
Tue, Apr 8 2008, 09:29 GMT
by Yapi Kredi Bank Economic Research Department
Here is the sequel to our analysis of YTL/$ released in our March 25 dated Occasional Paper “YTL/$ Responds ARCHly to Markets’ Tune”. We there tried to come up with a relevant framework within which movements of the YTL/$ could be explained both level and volatilitywise. The reason such an analysis became imposing was developments on both global and local scenes which led to significant volatility and level changes in the FX market.
Regardless of their distinct qualitative nature, all developments that are able to create disturbances can be treated as shocks to the system (i.e. markets in our case) from a quantitative point of view. Understanding, technically speaking “explaining”, the nature of exchange rate movements through properly chosen variables is (was) a worthwhile effort.
That granted, we intend to take the analysis one step further and try to conjecture some possible paths that the exchange rate might follow in the upcoming period. Instead of trying to come up with point estimates that are bound to be subject to significant forecast errors, we resort to generate alternative paths.
For short term purposes, it is more prudent to simulate viable alternative paths that are defined with respect to certain exogenous constraints which can be altered according to circumstances or forecast producer’s reading of circumstances. As will become apparent shortly, it is an extremely flexible framework given the chosen structure.
Since we will conduct a simulation analysis, we dropped the exogenous variables (i.e. cds and vix) from the mean and variance equations we previously used. We instead modify our previous model so as to take into account the nonlinearity which might be present in this kind of high frequency data.
Published on Tue, Apr 8 2008, 09:29 GMT
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YTL/$ Rate Responds ARCHly to Markets' Tune
Wed, Mar 26 2008, 13:24 GMT
by Yapi Kredi Bank Economic Research Department
Once again, financial markets have experienced turmoil and subsequently the volatility in exchange rates soared. As we know from our past experiences, such disturbances hit the financial system from time to time and may lead to significant deterioration in the markets if the effect is permanent. These shocks might arise from different sources (e.g. internal and/or external), which make it difficult to differentiate between two. Exchange rates are sensitive to developments both in domestic and international markets and therefore are good indicators of uncertainty. Although the uncertainty itself cannot be directly observed, it is often approximated by volatility measures. The award wining (i.e. 2003 Nobel Prize) Autoregressive Conditional Heteroscedasticity (ARCH) methods are commonly used for this purpose.
Empirical findings suggest that volatility in currency markets are primarily driven by volatility in equity markets. However, credit default swap (CDS) market can be a better measure of credit risk as credit market developments might result in contrary movements across these markets. The volatility index (VIX) is the popular measure of implied volatility and is used to represent overall sentiment for equity options. As a result, there exists a significant correlation between VIX and the volatility in currency market.
The intent of this small exercise is to provide a brief but an appropriate framework to understand the underlying developments in daily nominal YTL/USD exchange rate between January 1, 2003 and March 19, 2008. Lira’s level and volatility movements are mostly inadequately interpreted if modeled at all. In this modest exercise, we attempt to accomplish exactly that. Due to its useful and powerful properties both in terms of financial and statistical aspects, the log returns (i.e. logarithmic first differences of exchange rates, cds and vix) will be used in modeling unless otherwise stated.
Published on Wed, Mar 26 2008, 13:24 GMT
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