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This is the third of five country case studies on income inequality, and investigates the impact of financial liberalization and the rise of financial rents on income inequality in Turkey. The chapter has five sections: Introduction; Indicators of Income Distribution: The Evidence—a broad overview, and evidence on the patterns of income distribution in Turkey over the last three decades; Macroeconomic Adjustment under Financial Liberalization and the Rise of Financial Rents—a discussion of the evolution of functional categories of income that includes an account of the macroeconomic adjustment; The Rising Fiscal Gap and the Role of the State in Regulating the Distributional Structure—a detailed analysis of the rise in public sector deficits and the distributive consequences of the widening fiscal gap; and Concluding Comments and Overall Assessment. Sect. 3 looks at the inherent tensions caused by the macroeconomic disequilibria embodied in the process of integration with world markets under conditions of a poorly supervised banking system and underdeveloped and fragile domestic asset markets; here, it is found to be analytically convenient to decompose the path of Turkish liberalization after 1980 into two major subperiods partitioned by the strategic step of capital account deregulation—which took place in 1989 and was completed by the full integration of the domestic market into global financial markets. This section also studies the patterns of the wage cycle and productivity growth using quantitative filtering techniques, and reports on the disassociation of labour remunerations from the productivity gains in the real sphere of the economy.

Chapter 5 modifies Steindl’s model to include of wealth-induced consumption of the capitalists which counteracts the tendency of underconsumption in the short run. While the tendency towards stagnation (as a result of both underconsumption and underinvestment) could exist, there are ways to inflate capitalists’ expenditure through sources outside of current demand which will help avert this problem in the short run. This external impetus can be provided by bubbles in asset price markets which generate wealth effects on capitalists’ consumption. Short run dynamics shows that if the wealth effect is stronger than the effects of underconsumption and underinvestment, the economy faces a boom which can last as long as the asset market is booming. Just the opposite would follow when the asset market goes bust. This asset market could be of any asset, including non-financial assets like housing.

This chapter begins by discussing the expanding concepts of the brand and the change in the function of brands when the brand itself has become a product. It then explains the classic elements of the tort of passing-off. Next, it discusses how the concept of ‘reverse passing-off’. It then talks about the protection of marketing assets through the provision of registered trade marks. Lastly, it discusses another set of regimes that aid intellectual rights — collective and certification marks, designations of origin, geographical indications, and traditional specialties guaranteed.

This chapter expounds on the notion of the liquidity of an asset and its ability to function as a medium of exchange. Here, trading frictions are not associated with the purchase and consumption of goods. Instead, these are introduced into an asset market, or an over-the-counter market, with bilateral matches between investors and dealers. This model is further explored in an economy where investors accumulate capital goods to produce a general consumption good. Trading fictions are also endogenized by accepting free entry of dealers in the market-making sector. The chapter shows that multiple equilibria is reached due to the presence of complementarities between investors’ asset-holding decisions and dealers’ entry decisions, leading to the drying up of liquidity in the market because of self-fulfilling beliefs.

This chapter presents a panel discussion among three distinguished practitioners: Governor Donald L. Kohn of the Federal Reserve; former Governor Laurence H. Meyer, now vice chairman of Macroeconomic Advisers LLC; and William C. Dudley, advisory director of Goldman, Sachs & Co. The three panelists share the view that asset markets periodically develop “bubbles,” upward price movements that cannot easily be justified by fundamentals and that often end in sharp declines.

Building on the insights developed in Chapter 1, the chapter characterizes daily volatility connectedness across U.S. stock, bond, foreign exchange and commodities markets, from January 1999 to January 2010. The chapter shows that despite significant volatility fluctuations in all four markets during the sample, cross-market volatility connectedness was quite limited until the global financial crisis, which began in 2007. As the crisis intensified, so too did the volatility connectedness, with particularly important net connectedness from the stock market to other markets taking place after the collapse of the Lehman Brothers in September 2008

This chapter shows that the influential Mundell–Fleming result—that the choice of the optimal exchange rate regime should depend on the type of shock hitting the economy—critically depends on the assumption that while there are frictions in goods markets (in other words, sticky prices), asset markets are frictionless. Reversing these assumptions —frictionless goods markets and segmented asset markets—turns the famous Mundell–Fleming dictum on its head: flexible rates are called for in the presence of monetary shocks whereas fixed exchange rates are optimal in the presence of real shocks. Thus, the optimal exchange rate depends not only on the type of shock (monetary versus real) but also on the type of friction (goods market versus asset market).

This chapter examines the impact of interest rates on housing prices. It suggests that the impact of interest rates may be weaker than has been traditionally suggested by the asset market approach to house prices. Interest rates fail to adequately explain the great housing market fluctuations between 1996 and 2010. Over the long 1996 to 2006 boom, they cannot account for more than one-fifth of the rise in house prices. There is also no evidence that approval rates or down payment requirements can explain most or all of the movement in house prices.

The deepened financial integration of EDEs has heightened their susceptibility to global financial shocks and increased the instability in their credit, assets, and currency markets. It has led to significant loss of autonomy over monetary policy and the entire spectrum of interest rates. At the same time, these countries are said to have become more resilient because they have adopted more flexible exchange rate regimes, accumulated large stocks of international reserves, and reduced their exposure to the exchange rate risk by shifting from foreign currency to local currency debt. This chapter critically examines these contentions and concludes that none of these practices provides adequate protection against external financial shocks, taking into account the new vulnerabilities entailed by the increased depth and changed pattern of integration, particularly greater presence of foreigners in domestic financial markets and of the nationals of emerging economies in markets abroad.

The chapter presents a small open-economy model to study the first-round effects of international food-price shocks in developing countries. First-round shocks are defined as changes in headline inflation that, holding core inflation constant, help implement relative price adjustments. The model features three goods (food, a generic traded good, and a non-traded good), varying degrees of tradability of the food basket, and alternative international asset market structures. First-round effects depend crucially on the asset market structure. Under complete markets, inter-temporal substitution prevails, making the inflationary impact of international food price shocks proportional to the food share in consumption, which in developing countries is typically large. Under financial autarky, the income channel is dominant, and first-round effects are instead proportional to the country’s food trade balance, which is typically small. The results cast some doubt on the view that international food price shocks inherently have large inflationary effects in developing countries.

This chapter describes the historical evidence on sudden stops (SSs) using a new international data set on capital inflows spanning sixteen countries since the early days of financial globalization, around 1870—when asset market arbitrage was greatly spurred by the advent of the transatlantic telegraph in 1866. Two key features that underpin the current relevance of this period are the high degree of integration of world capital markets and the widespread use of bond financing as the main instrument of sovereign borrowing—two clear similarities with its late twentieth-century/early twenty-first century counterpart. The chapter also establishes the links between SSs and currency crashes. One feature of the pre-World War I period, which makes it especially interesting to look at this relationship, is the existence of an international monetary system that provided a key incentive for countries to peg their currencies to gold and thus forestall devaluations or depreciations.