Macroeconomic shocks, fluctuations, and capital controls: A dynamic stochastic general equilibrium model

This thesis has two main objectives. The first is to examine the relationship between world interest rates and business cycles quantitatively and theoretically for the Turkish economy. Particularly, the contribution of the world interest rate shocks to macroeconomic volatility is being investigated. In this context, in the first chapter, a set of stylized facts about Turkish economy business cycles has been obtained. In the second part, a Dynamic Stochastic General Equilibrium (DSGE) model compatible with these stylized facts has been designed. The structural and shock process parameters of the model were estimated by Bayesian Maximum Likelihood methodology for Turkish economy between 2000:1-2018:4. Findings indicate that the world interest rate shocks have a significant effect on the volatility of macroeconomic variables. Secondly, based on these findings, in the third chapter of the thesis, the effectiveness of capital controls that can be applied to prevent excessive volatility has investigated. The findings show that capital controls are very effective in dampening economic fluctuations and reducing the variance of macroeconomic variables.