Five essays on hysteresis effects in economics: Foreign trade, employment, investment, finance, output gap

As a result of globalization, there has been a significant increase in crises since 1980s. The ineffectiveness of the policies and solution proposals put into practice for these crises has brought up the discussion of the existence of hysteresis effects in crises. The hysteresis phenomenon, whose theoretical foundations are based on the New Keynesian view, was first observed in the employment structure and started to take place more in the literature, where other dimensions may also be valid. In this context, in this study, foreign trade, employment, investment, finance and output gap dimensions are analyzed as different dimensions of hysteresis. In the second part, foreign trade hysteresis, also called exchange rate hysteresis, is examined. After a temporary shock in real exchange rates or as a result of long-term hysteresis effects, the real exchange rate elasticity of imports decreases. In case the domestic currency appreciates, importing companies that gain competitiveness and enter the market incur sunk costs. The main dynamic of hysteresis is the firms that remain in the market in order to compensate for the sunk costs despite the return of the domestic currency to its former level after the temporary shock in real exchange rates. In order to test the hysteresis effects in the study, the existence of hysteresis effects in the Turkish economy for 2003Q1-2021Q2 was analyzed by using the structural break unit root test and the asymmetry hypothesis. Detection of structural break in import volume according to the results of structural break unit root test supports the existence of hysteresis effects in foreign trade flows. On the other hand, the findings obtained from the asymmetry hypothesis, which analyzes the behavior of firms to stay in the market in case of depreciation of the domestic currency, also prove the existence of hysteresis effects in foreign trade flows. According to the asymmetry hypothesis, during the period of depreciation of the domestic currency (2016Q2-2018Q2), firms maintain their importer structure by exhibiting the behavior of staying in the market. This indicates the validity of hysteresis effects in the foreign trade flows of the Turkish economy. In the third chapter, the hysteresis in the employment structure is examined. The motivation of this section is estimated by ARFIMA model, Toda-Yamamoto causality test and Structural VAR (SVAR) model for the period 2007Q1:2020Q2 using money supply, inflation and labor cost variables in order to determine the hysteresis effects as well as to determine the dynamics causing hysteresis. Causality has been determined from money supply, inflation and labor cost to unemployment. According to the findings obtained from the ARFIMA model, the long-memory behavior in unemployment confirms the validity of the hysteresis by pointing out that the structural shocks in unemployment show a resistant structure and their effects spread over the long run. On the other hand, according to the Structural VAR model results, it was concluded that although monetary shocks and labor cost shocks have the same effect on unemployment, the situation differs in terms of hysteresis. The longer-term spread of the effects of monetary shocks compared to labor cost shocks is in the same direction as the empirical literature and confirms the existence of hysteresis in unemployment. At the same time, the weak effectiveness of the inflationary structure in reducing unemployment, as a demand-side policy choice for the solution of unemployment, is another finding that proves the existence of hysteresis in unemployment. This situation proves the existence of strong hysteresis in the employment structure. In the fourth chapter, hysteresis in investments is examined. The validity of hysteresis effects for investments in the Turkish economy is analyzed for the period 2005Q1:2020Q4. Structural break unit root analysis and smooth transition structural break test results, which are used to detect hysteresis effects in investments, support the existence of hysteresis effects in investments. At the same time, causality and asymmetric causality tests were applied on the variables of interest, GDP and productivity, which are theoretical determinants of investments, in order to analyze the dynamics that cause hysteresis effects and to test suggestions in policy making. According to the empirical findings, the fact that there is no causality relationship with the variables that are the main determinants of investments, especially the fact that interest rates have no effect on investments indicates hysteresis. On the other hand, asymmetric relationships provide important information in the determination of the dynamics that cause hysteresis effects. Productivity, which has an asymmetric causality relationship with investments, is the main dynamic of hysteresis effects. In the fifth chapter, dollarization hysteresis is examined. In this section, it is aimed to determine the hysteresis in dollarization and also the dynamics that cause dollarization. The 2005M12:2021M10 (T=191) period of the Turkish economy was analyzed by dollarization hysteresis structural break test, Granger causality test and NARDL method. The main empirical findings obtained; It has been concluded that the dollarization phenomenon is experienced in the Turkish economy and after the structural break in dollarization (2010M11), it behaves in a hysteresis structure. The causal relationship between dollarization, inflation and exchange rate is a common result in the empirical literature. According to the Granger causality test results, exchange rate shocks cause dollarization, while dollarization causes inflation and exchange rate shocks. Based on these relations, it can be interpreted that inflation acts as a transmission mechanism between dollarization and exchange rate shocks in the Turkish economy. According to the NARDL model estimation results, while an asymmetrical relationship between dollarization and inflation could not be determined, the existence of an asymmetric causality between dollarization and exchange rate was determined. In line with these results, it is possible to say that the main dynamic that causes the hysteresis in dollarization is exchange rate shocks. In the sixth chapter, output gap hysteresis is examined. The existence of hysteresis in the output gap of the Turkish economy in the 2005Q4:2021Q3 period was investigated by the logistic smooth transition structural break test and the structural VAR method. The empirical findings obtained confirm the existence of hysteresis effects in the output gap. With the effect of the 2008 World Crisis, the structural break in the output was detected by the logistic smooth transition structural break test and the existence of the permanent effect of the crisis was determined. On the other hand, the resilient structure in the output gap, which is another component of hysteresis, was tested with the structural VAR technique in terms of its response to the variables of monetary policy, productivity and capacity utilization rate. The weak effectiveness of monetary policy in the output gap, the permanent effects in productivity and capacity utilization rate, and the share of shocks in other variables in output shocks according to historical decomposition are satisfactory in the presence of hysteresis in the output gap. Keywords: Hysteresis, foreign trade, employment, investment, finance, output gap, time series analysis