Ferda Halicioglu

This paper applies extreme value theory (EVT) to identify and characterise extreme exchange market pressure (EMP) across ten emerging economies using monthly data from 2000 to 2023. We construct four EMP indices and fit the Generalised Pareto Distribution (GPD) to threshold exceedances of the Kaminsky-Lizondo-Reinhart (KLR) and Goldberg-Krogstrup (GK, 2023) indices. Both pass the Anderson-Darling (AD) goodness-of-fit test in most countries, but the GK estimates are erratic, which we attribute to the cubic-spline interpolation of annual financial-position data; we therefore use KLR as the primary index. At country-specific thresholds, the KLR shape parameters range from -0.42 (Argentina) to 0.50 (Russia), and every bootstrap confidence interval includes zero: monthly EMP tails in these economies are closer to the exponential case than to the explosive Pareto-type tails often assumed. Tail risk nevertheless differs sharply in magnitude. Value-at-risk (VaR) and expected shortfall at the 99th percentile, which closely match the empirical extremes, are highest in Argentina, Russia and Turkey and lowest in China, South Korea and Mexico. A supporting binary logistic regression shows that same-month EMP changes are closely associated with threshold crossings, but this association is largely mechanical: when EMP changes from the previous one to three months are used instead, predictive power almost disappears, with the pseudo-R² falling from 0.33 to about 0.015. Extreme episodes therefore arrive with little warning from the EMP path itself; the only robust lagged signal is the size of the previous month’s EMP movement, consistent with volatility clustering. Exchange rate regime and monetary policy framework dummies have no independent predictive power in any specification.

Foreign direct investment (FDI) is widely believed to stabilise emerging-market currencies because, unlike portfolio capital, it cannot exit during a crisis. This conjecture has rarely been tested against the actual tail behaviour of exchange market pressure (EMP), which the literature continues to treat as approximately Gaussian. Using Hill (1975) tail-index estimation on EMP for ten G20 emerging economies (Argentina, Brazil, China, India, Indonesia, Mexico, Russia, South Africa, South Korea, and Turkey) from December 1999 to December 2023, we show that EMP is heavy-tailed in every economy, with tail indices ranging from approximately 2.0 (Argentina, India, Russia) to 3.8 (South Korea); for the heaviest cases the estimates are statistically indistinguishable from the infinite-variance boundary. We further test whether the FDI share of total capital inflows reduces the probability of extreme EMP using actual quarterly IMF balance-of-payments data, country-level Granger causality tests, country-level logit estimation, and a pooled rare-events logit estimation with country fixed effects. We find no stabilising effect in any of the ten economies, including in the pooled specification; an apparent protective effect detectable in a naive pooled model vanishes once country fixed effects are introduced. The results imply that reserve adequacy should be calibrated to tail-quantile estimates rather than to multiples of historical standard deviation, and that capital-composition policy should not be relied upon as a substitute for tail-risk-based reserve management.

A new strand of literature in international economics is now in the early stages of development, i.e., the impact of exchange rate changes on service trade. We add to this literature by considering the link between the Turkish lira's real effective exchange rate and its trade in services. Sinsectce nonlinear adjustment of the exchange rate has proved to yield more significant outcomes relative to linear adjustment, we estimate a nonlinear model (assuming the effects are asymmetric) in addition to a linear model (which assumes the effects are symmetric). When we first estimated the models using Turkish aggregate trade in services, we could only find some short-run effects. However, we disaggregated the data into eight service categories to reduce aggregation bias. We then found short-run significant effects in all eight service industries. Short-run effects lasted into long-run effects in six industries. The unaffected industries were construction and transport.

This study examines the determinants of a change in currency expectations for the Turkish Lira (TL) versus the US dollar with different maturities (1 month, 3 months and 1 year). The risk premium is estimated using the interest rate differential and a latent component called the missing risk premium . The empirical model is extended to break down the risk component by introducing other explanatory variables, such as currency swap agreements, credit default swap (CDS), foreign reserves and the volatility index (VIX). A state‐space model is employed to explain the behaviour of an unobserved variable over the period between January 2005 and March 2023 with daily and weekly data frequencies. Our findings suggest that the uncovered interest parity (UIP) condition does not hold consistently in Turkey during this period. Deviations from UIP can be attributed to a time‐varying risk premium as outlined in Fama's framework. Additionally, our analysis also shows that interest rates and swaps play a significant role in explaining the variations in the TL's risk premium. Moreover, we found a substantial increase in both the level and volatility of the missing risk premium for longer maturities after 2018. Incorporating observable variables substantially reduces both the magnitude and the long‐lasting impact of the missing risk premium shocks on expectations. Overall, this study sheds light on the intricate relationship between monetary policy changes, exchange rates and risk premia in the context of an emerging market.

Two studies have assessed the link between the exchange rate and trade in services. While one study concluded that the U.S. insurance and financial service trade is not affected by the exchange rate, another study reversed that finding by applying a non-linear method. We add to this literature by considering Singapore’s experience. After estimating the linear and non-linear ARDL models using Singapore’s imports and exports of insurance and financial service trade, we conclude that changes in the real effective value of the Singapore dollar have both short-run and long-run effects on Singapore’s trade in both services.

Purpose: The purpose of this paper is to empirically test the validity of the productivity bias hypothesis (PBH) in 18 Middle East countries. Design/methodology/approach: The paper employs autoregressive-distributed lag approach to cointegration approach and stability tests. Findings: The empirical results suggest the existence of the PBH only in the case of Bahrain, Kuwait and Saudi Arabia. Practical implications: Conclusions drawn from this research could be useful for the policy-makers of governments and practitioners in international trade organizations. Originality/value: This study extends the existing literature by providing initial empirical time series evidence of the PBH for the entire Middle East countries.