Research interests: Macroeconomics, Monetary Economics, Banking, and International Finance.

Research statement: Personal research statement – 2016


Google scholar:



Required Reserves as a Credit Policy Tool (with Enes Sunel and Temel Taşkın), The B.E. Journal of Macroeconomics, 2013, Vol. 13 (1), 823-880.       Working paper version

Abstract: This paper quantitatively investigates the role of reserve requirements as a credit policy tool. We build a monetary dynamic stochastic general equilibrium (DSGE) model with a banking sector in which an agency problem between households and banks leads to endogenous capital constraints for the latter. In this setup, a countercyclical required reserves ratio (RRR) rule that responds to expected credit growth is found to countervail the negative effects of the financial accelerator mechanism triggered by productivity and bank capital shocks. Furthermore, it reduces the procyclicality of the financial system compared to a fixed RRR policy regime. The credit policy is most effective when the economy is hit by a financial shock. A timevarying RRR policy reduces the intertemporal distortions created by the fluctuations in credit spreads at the expense of generating higher inflation volatility, indicating an interesting trade-off between price stability and financial stability.

Cross-sectional Facts on Bank Balance Sheets over the Business Cycle (with O. F. Abbasoğlu and Şerife Genç), Central Bank Review, 2015, Vol. 15, 31-60.       Working paper version

Abstract: We investigate the cyclical behavior of commercial banks’ balance sheet variables for different size groups using bank-level Turkish data. We first rank banks based on the size of their assets, and then systematically document business cycle facts of various balance sheet items and profitability measures of different bank groups. We find that the cyclical behavior of these variables is quite heterogeneous at the cross-sectional level: (i) Bottom 25 percent banks finance 30 percent of their assets with equity while for larger banks this ratio is around 12 percent, implying that debt financing is more prevalent for larger banks, (ii) bank assets and credits are highly procyclical and the level of procyclicality is lower for larger banks, (iii) security holdings of small banks are countercyclical whereas those of large banks are procyclical, (iv) total deposits are procyclical except for top 25 percent and equity issuance is acyclical to countercyclical at best, (v) loan spread is strongly countercyclical except for small banks while return on assets and equity are acyclical, and (vi) switching between debt and equity financing is more pronounced for the top 25 percent banks. The rich set of cross-sectional empirical facts about the cyclicality of bank balance sheets presented in this paper should be helpful for researchers to build and evaluate theoretical heterogeneous models about financing sources of banks.

Financial Intermediaries, Credit Shocks and Business Cycles, Oxford Bulletin of Economics and Statistics, 2016, Vol. 78 (1), 42-74.         Working paper version

Abstract: We document the cyclical properties of aggregate balance sheet variables of the US commercial banks: (i) Bank credits and deposits are less volatile than output, while net worth and leverage ratio are several times more volatile, (ii) bank credits and net worth are procyclical, while deposits, leverage ratio and loan spread are countercyclical. We then present a real business cycle model with a financial sector to investigate how the dynamics of macroeconomic aggregates and balance sheet variables of the US banks are influenced by empirically disciplined shocks to bank networth. Both calibrated and estimated versions of the model show that these financial shocks are important not only for explaining the dynamics of financial flows but also for the dynamics of macroeconomic variables.We find that the recent deterioration in aggregate net worth of the US banking sector contributed significantly to the 2007–09 recession.

On International Consumption Risk Sharing, Financial Integration and Financial Development, Emerging Markets Finance and Trade, 2016, Vol. 52 (5), 1241-1258.     Working paper version

Abstract: This article investigates the empirical link between international consumption risk sharing, financial integration, and financial development for a group of twenty-nine developed and developing countries in the G7, the Euro area, and the OECD. Estimation results indicate that (1) risk sharing in the Euro area is higher than those in the G-7 and the OECD, and (2) a higher degree of risk sharing is associated with a greater degree of financial integration and a lower level of financial development. These results suggest that more financially integrated countries might be better able to insure themselves against idiosyncratic income shocks and countries with more developed financial markets might tend to engage in less consumption risk sharing with other countries thanks to their own sophisticated financial markets. Holding financial integration and financial development equal, countries in the Euro area engage in significantly more risk sharing than the ones in the G7 and the OECD.

External Shocks, Banks and Optimal Monetary Policy: A Recipe for Emerging Market Central Banks   (with Enes Sunel), International Journal of Central Banking, forthcoming.       Working paper version

Abstract: We document empirically that the 2007-09 Global Financial Crisis exposed emerging market economies (EMEs) to an adverse feedback loop of capital outflows, depreciating exchange rates, deteriorating balance sheets, rising credit spreads and falling real economic activity. In order to account for these empirical findings, we build a New-Keynesian DSGE model of a small open economy with a banking sector that has access to both domestic and foreign funding. Using the calibrated model, we investigate optimal, simple and operational monetary policy rules that respond to domestic/external financial variables alongside inflation and output. The Ramsey-optimal policy rule is used as a benchmark. The results suggest that such optimized rules feature direct and non-negligible responses to lending spreads, the real exchange rate and the US policy rate, together with a mild anti-inflationary policy stance.

Policy papers

Navigating with NEMO (with Erling M. Kravik), Norges Bank Staff Memo, 2019, No 5/2019.

Abstract: This paper describes NEMO, the main dynamic stochastic general equilibrium model used at Norges Bank for monetary policy analysis and forecasting. NEMO has been used to identify the sources of business cycle fluctuations in Norway, to conduct scenario analysis, to produce macroeconomic forecasts, and to conduct monetary policy analysis. The model has recently been re-calibrated and re-estimated to reflect economic conditions since the introduction of inflation targeting in 2001 and other structural changes. This paper presents the estimation of the model using Bayesian methods. It then evaluates its dynamic properties through examining model-based sample moments, conducting impulse response analysis as well as historical shock and forecast-error-variance decompositions, and assessing its forecasting performance against a suite of empirical models. NEMO is used in combination with a broad set of data, empirical models and judgement to make forecasts for key variables in the Norwegian economy. Re-estimation and further development of NEMO are important for the model to continue to be a useful tool for monetary policy analysis.

The Power of Forward Guidance in NEMO (with Drago Bergholt, Sara S. Meyer and Øistein Røisland), Norges Bank Staff Memo, 2019, No 7/2019.

Abstract: This staff memo revisits the power of forward guidance with particular emphasis on the effectiveness of anticipated policy in Norges Bank’s main policy model NEMO. First we explain, within the context of a simple toy model, why and how forward guidance has implausible effects in standard monetary policy frameworks. Second, we discuss some of the main solutions to the so-called forward guidance puzzle. We argue that existing proposals, including effective discounting as in Gabaix (2018), come with serious limitations once guidance about nominal policy rates is considered. With these lessons in mind, we proceed with a quantitative assessment of forward guidance in NEMO. It is shown that the presence of several real and nominal frictions reduces the net effects of forward guidance compared with the simple model. A powerful expectations channel is still at play: agents in NEMO believe that expansionary interest rate paths will be counteracted at some point in the future, resulting in limited net effects of forward guidance policies. We briefly discuss the realism of this feature.

Work in Progress

Central Bank Collateral Framework as an Unconventional Policy Tool (with Osman Furkan Abbasoğlu and Birol Kanık).

Abstract: This paper investigates the macroeconomic effects of easing collateral standards in open market operations (OMOs), an unconventional policy tool that central banks in advanced economies (AE) implemented during the Great Recession to attenuate the effects of financial market disruptions on the real economy. Using a New-Keynesian general equilibrium model with an explicit banking sector and central bank collateralized lending, we study the central bank policy of broadening the range of assets that are accepted as collateral in OMOs, e.g. accepting a wider range of government bonds or taking corporate loans as eligible. Taking the analysis to the experience of central banks in AE during the Great Recession, when the policy rate endogenously hits the zero lower bound (ZLB) due to sudden rise in funding stress, active use of collateral policies helps mitigate the sharp drop in asset prices, credit, investment, and output. Our analysis also reveals that under severe financial market conditions, central banks do not need to wait until the policy rate hits the ZLB: active collateral policies reduce the need for looser conventional policy response and can help central banks avoid the ZLB.

The Transmission of Fiscal Stimulus in Small Open Economies: The Role of Finance Channel (with Enes Sunel).

Abstract: Empirical literature documents that the size of fiscal multipliers crucially depends on country characteristics such as openness to trade, exchange rate regimes and sovereign indebtedness. We study a unified framework to explore the channels through which these characteristics shape the nature of how fiscal stimulus operates in emerging market economies. The analytical setup is a New Keynesian small open economy model with banks. Financial intermediaries make loans to both the private sector and the government, leading to financial crowding effects via the credit channel. We find that fiscal multipliers are larger under exchange rate pegs than floating regimes and financial frictions play a fundamental role in the transmission of stimulus under the two regimes.

Permanent Working Papers

External Shocks, Banks and Optimal Monetary Policy in an Open Economy: Loss Function Approach   (with Enes Sunel)

Abstract: We systematically document that the 2007-09 financial crisis exposed emerging market economies (EMEs) to an adverse feedback loop of capital outflows, depreciating exchange rates, deteriorating balance sheets, rising credit spreads and falling real economic activity. Using a medium-scale New Keynesian DSGE model of a small open economy augmented with a banking sector that has access to both domestic and foreign funds, we explore the quantitative performances of alternative augmented IT rules in terms of macroeconomic and financial stabilization. In response to external financial shocks, credit-augmented IT rules are found to outperform output and exchange rate augmented rules in achieving policy mandates that target financial and external stability. A countercyclical reserve requirement policy that positively responds to the non-core liabilities share is found effective especially in coordination with monetary policy in reducing the procyclicality of the financial system.