Effects of permanent and temporary shocks on industrial production index: The case of Turkey

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Thesis Type: Postgraduate

Institution Of The Thesis: Dokuz Eylül University, Sosyal Bilimler Enstitüsü, İktisat Ana Bilim Dalı, Turkey

Approval Date: 2016

Thesis Language: Turkish

Student: OSAMA WAQAR

Supervisor: HAKAN KAHYAOĞLU

Open Archive Collection: AVESIS Open Access Collection

Abstract:

The Industrial Production Index (IPI) is the most important supply side economic indicator. Because of that it is the principle source of information for the trend of economic growth. The importance of IPI is its frequent availability, which release on monthly and quarterly frequency. For that reason on monthly basis it is important economic variable to see and analyze reaction of shocks to the movements in economy, because of that we use here in this thesis IPI as the main variable. So the aim of this thesis is to investigate the effects of permanent and temporary shocks in industrial production index of Turkey. For this purpose we use, unobserved component model (UCM) developed by Harvey (1985). UCM carries different property components of economic time series information, and is being determined by these components. Unobserved components model plays an important role in short-term economic policy-making and monitoring of the economy. This models have been intensively used in economic research, applied econometric research and statistical practical applications. Through this UC model we decompose IPI series into trend and cycle component to see the effects of shocks in IPI of Turkey, that shocks are coming from permanent component or transitory component. A monthly data set starting from 1985 to 2015 are being used in this thesis. We run the model by the help of Structural Time Series Analyser, Modeller and Predictor (STAMP). As a result of an application to the industrial production of Turkish economy, the effects of shocks are found in the temporary component. From this point the fluctuation of short term shocks are higher as compare to long term, and reached to conclude that shocks in short term will lead to down the trend of long term shocks. Keywords: Unobserved Component Model, Permanent Shocks, Temporary Shocks, Industrial Production Index.