Volume 7, Issue 3

This paper analyzes macroeconomic determinants of the foreign exchange risk premium in two Gulf Cooperation Council (GCC) countries that peg their currencies to the U.S. dollar: Saudi Arabia and the United Arab Emirates. The analysis is based on the stochastic discount factor methodology, which imposes a no arbitrage condition on the relationship between the foreign exchange risk premium and its macroeconomic determinants. Estimation results suggest that U.S. inflation and consumption growth are important factors driving the risk premium, which is in line with the standard C-CAPM model. In addition, growth in international oil prices influences the risk premium, reflecting the important role played by the hydrocarbon sector in GCC economies. The methodology employed in this paper can be used for forecasting the risk premium on a monthly basis, which has important practical implications for policymakers interested in the timely monitoring of risks in the GCC.

Unsold artworks are excluded from a traditional hedonic price index as no observable price can be attached to them. The question is whether the exclusion of unsold artworks lead to a sample selection bias in the traditionally constructed art price indices. In this paper, we examine the art auction sales performance in Turkey for the period between January 2005 and February 2008 using a unique database which contains 11,212 sales records including unsold items. We employ the two-stage Heckit model. Our empirical model combines demand-side influences with supply-side characteristics as well as the auction microstructure. We find that there is no sample selection bias created by unsold works. This finding also provides an explanation for why the attempts in the literature to identify which works are (not) sold turned out to be largely unsuccessful. On the behavioural side, we confirm the existence of the “afternoon effect” in both sales rates and in sales prices in Turkish art auctions. There is also some evidence for the “death effect” and “master effect” in both sales rates and sales prices. Finally, we find that the returns in the Turkish art market serve as a hedge against inflation in our sample period.

In the first quarter of 2008, along with the beginning of the crisis, the employment share of agriculture in Turkey deviated from its long-run trend and started to rise. Both the timing and the direction of the change caused a public debate seeking an explanation of this phenomenon. Getting attention in the debate is the fact that labor productivity in agriculture has been declining since that quarter. How much of the increase in agricultural employment can be explained by the secular changes in its productivity? To answer this question, we use a multi-sector general equilibrium model in which employment share in agriculture is determined solely by the subsistence constraint and labor productivity in agriculture, where sectoral productivity growth rates are treated as exogenous. The model accounts for more than 90 percent of the decline in the agricultural employment share between 2000:Q2 and 2010:Q3. The model is also able to generate the increase in agricultural employment since 2008:Q1, although it slightly overpredicts the agricultural employment share. The model also predicts the sectoral allocations of labor in non-agricultural activities during the sample period. A detailed analysis of the driving forces of the growth in agricultural productivity is needed, since it lies at the heart of the secular changes in employment shares in Turkey.

The EU’s 2004 decision to begin membership negotiations with Turkey marked the turning point in FDI (Foreign Direct Investments) flows to Turkey. The EU decision probably convinced international investors and multinational corporations that the future of Turkey lies with the EU, so that FDI inflows in 2006 and 2007 boomed. The trend slowed down in 2008 and 2009 because of the pervasive financial crisis, though the government has recently been adopting extended measures in order to attract more investments from abroad. After a brief survey of the state-of-the-art FDI potential measures for Turkey, I try to understand the main reasons for the country’s relatively laggard position and then which could have been the FDI inflows and stocks into Turkey if the country had already been an EU accession country in the recent years (referring to the 2004 and 2007 enlargement). Using an out-of-sample estimation technique in a gravity environment I find that the unexploited potential for more FDI in Turkey is indeed exceptional.