Important problem of central banks
Fatih Özatay, PhD
26 October 2009
For a while, I have been touching upon an issue that is big of a problem for the implementation of monetary policy. The fundamental question was: Should monetary policy be used to prevent the asset price bubbles that played a major role in the emergence of the crisis? The commentary on this issue was published on last Thursday. At the end of that commentary I asked questions one after another: So, what can central banks do in the event of a credit expansion? A problem arises just at the beginning: At what pace credit expansion is rapid? What if a credit expansion we consider rapid in fact does pose any risk for the financial system? Assume that you overcome this challenge and decided that the things are not on track in the credit market? Then what would you do?
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Repercussions of the crisis
Fatih Özatay, PhD
25 October 2009
September 2008, with the bankruptcy of Lehman Brothers, is accepted as the date of the emergence of the crisis. Today, I would like to analyze the development of the crisis in Turkey starting from a bit earlier than that date. Here, I will examine the figures for almost one and a half year.
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What pace drives us to disaster?
Fatih Özatay, PhD
22 October 2009
I will continue with the issue I started to discuss on Monday. Today's question is: Why does rapid credit expansion has the potential to pose the risk of a significant monetary policy problem? In a study published in 1996, J. Frankel and A. Rose analyses monetary crises in developing countries for the period between 1971 and 1992. One common characteristic for a hundred countries is that domestic credit volume expands rapidly. A new study in this topic is conducted by Barajas et al. They point out that more than half of the banking crises they analyzed were preceded by a period of rapid credit expansion.
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Rapid credit expansion and bubbles
Fatih Özatay, PhD
19 October 2009
The following lines are quoted from Central Bank's announcement from 2004 titled 'August Inflation, Outlook and CBRT Interest Rates: "It should be kept in mind that what Turkey needs is not high but unbalanced growth but sustainable growth in harmony with the implemented policies. To ensure this, it is necessary to implement selective measures such as supply-oriented limitations which will minimize credit expansion to reasonable levels (if detected to contradict with the goal of securing a healthier financial sector) and will also be in line with international financial sector norms."
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Rents cannot be indexed to PPI
Fatih Özatay, PhD
18 October 2009
I enumerated a lot of topics to handle, but unfortunately I cannot begin dealing with them today. The reason is the will 'to be useful' for the country. The Parliament is negotiating the 'Code of Obligations'. This is a highly important draft. Yesterday, Radikal daily gave information on some articles of the law draft. The section also gave separately a column on the articles regulating renter- house owner relations. As one of the articles stipulate, rents can be increased at most by the rate of increase in producer price index (PPI). Oh no! New price indices are being published since 2003. Before that, consumer price index (CPI) and wholesale price index were calculated. Now, CPI and PPI are calculated.
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Period of critical figures
Fatih Özatay, PhD
15 October 2009
There is a lot to deal with; for instance I would like to touch upon how inflation targeting regimes might change from now on. I have things to say in particular on the possible response of monetary policy to rapid credit expansion, as the IMF has opened to discussion in its last report. The Central Bank of Republic of Turkey has an important experience from 2004. The 'foreign fund growth' problem must also be discussed. Conditions in the aftermaths of the global crisis is different than 2001. So in this milieu I would like to turn back to discuss why the confidence in the economy cannot be improved solely by fiscal discipline. But I also have to finish what I started. In my two previous articles I examined the latest developments in industrial production, domestic credit supply and export
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Credit market risks
Fatih Özatay, PhD
12 October 2009
Today let us deal with the credit market and discuss whether or not a risk is growing for the near future. Credit channel was one that the effects of the crisis were transmitted. Both the evaporation of international liquidity facilities and the ongoing ambiguity made banks unwilling to extend credits. As well considering that domestic demand comes to a halt in such climate, we should also take into account that willingness to receive credits also decreases.
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Developments in production and exports
Fatih Özatay, PhD
11 October 2009
We have talked about 'developed countries and others', or 'different economy policies against the crisis', and now it are time to talk about Turkey. Today, I would like to assess the latest developments. First, I will say a few words about the industrial production index announced this week.
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Timid reaction of 'us': Why?
Fatih Özatay, PhD
08 October 2009
I will continue with the 'Us and them' series. Main subject of the series was the difference between country groups in terms of the policies they implemented to tackle economic contraction and rising unemployment. Two main phenomena attracted attention in this context. First, there were fundamental differences between the countries, which are not developed and which were affected by the crisis the most, in terms of their responses to the crisis. Second, such difference could also be observed between the responses of developed countries and other countries. However, fiscal indicators were not in favor of developed countries in G-20.
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Us and them
Fatih Özatay, PhD
05 October 2009
For a while, I have being touching upon the policies different country groups implement to tackle economic contraction and rising unemployment. Two main phenomena attracted attention in this context. First, there were fundamental differences between the countries, which are not developed and which were affected by the crisis the most, in terms of their responses to the crisis. Second, such difference could also be observed between the responses of developed countries and other countries. Today I want to discuss the possible reasons for this difference.
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