Caglayan, Mustafa. “Essays in macroeconomics”. PhD, Boston College, 1997. http://hdl.handle.net/2345/46.
It is often argued that monetary instability reduces the informational content of market signals and thereby hinders the efficient allocation of investment. Essay I uses a signal extraction framework to give empirical content to this idea. In particular, we show why this framework predicts that, as monetary uncertainty decreases, the cross-sectional distribution of investment widens. We then explore this hypothesis using panel data information for UK companies over twenty years and receive support from the data. Essay II investigates whether the Istanbul Bourse is efficient or not. To carry out the investigation, the paper applies Johansen's cointegration technique to twelve asset prices from the Istanbul Bourse along with the exchange rate between the U.S. Dollar and the Turkish Lira. The results of these tests suggest that investors in the Istanbul Bourse do not seem to consistently reap abnormal profits by being able to predict future prices. Although asset prices seem to move together in the long run, the use of ECM fails to improve forecasts over univariate martingale predictions. Although the existence of international trade in similar products has captured the attention of trade theorists over the last two decades, it has not been incorporated into models of investment. Essay III develops a Tobin's Q model of capital investment with a purpose to explain the investment decision rule of a firm operating in both domestic and foreign output markets in competition with a foreign rival. Empirical results provide support for the model's predictions.