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    Economic policy mistakes (2)
    Fatih Özatay, PhD 06 February 2014
    GDP growth will be a meager 4 percent in 2013. Turkey has suffered a “high current account deficit-low GDP growth” challenge in the last two years. It’s time for the second piece in the “economic policy mistakes” series. The first one rewound the scene and enumerated some important developments concerning the Turkish economy. I think it would be wise to discuss policy mistakes on that perspective. The first blow came on late May 22nd from Federal Reserve (FED) chair Bernanke as the declared that the FED might initiate tapering. This was planned to be followed by steps to raise the federal bond rate. After Bernanke’s statements, Turkey faced exchange and interest rate hikes and came to be cited in an increasing number of reports as one of the two countries which will be hit the hardest by t [More]
    Economic policy mistakes (1)
    Fatih Özatay, PhD 01 February 2014
    Turkey has made critical economic policy mistakes over the last couple of years, which increased the risk perception. Let’s start from the moment and go back in time. Turkey has made critical economic policy mistakes over the last couple of years, which unfortunately made the Turkish economy riskier. I want to discuss these mistakes in a series of commentaries. Let’s start from the moment and go back in time. 1) The drastic upwards trend in the exchange rate was replaced by a rather moderate upwards move at a higher exchange rate after the Central Bank (CB) decided during its interim meeting on Tuesday night to increase the policy rate (average funding cost) from 7.75 to 10 percent (weekly repurchase rate). 2) The CB’s interest rate decision in its stated meeting last Tuesday was “highly [More]
    Does low interest rate actually boost growth?
    Fatih Özatay, PhD 18 January 2014
    The responsibility of these does not fall exclusively on the Central Bank. It would be extremely unfair to claim so; but so would to ignore the role of monetary policy in this picture. Such comments are quite popular at news channels nowadays: “The Central Bank refrains from raising interest rates for such step might constrain growth.” This interest rate issue is getting increasingly interesting, so that we are almost going to divide into camps. The question is, whether or not the Central Bank can boost GDP growth by keeping interests rates low. Before answering this question, we have to think on another one: “Why doesn’t the Central Bank cut the interest rate down to zero for furthering GDP growth?” There are three versions of the answer here. Actually the answer is quite clear: if you d [More]
    Some observations about the labor market
    Fatih Özatay, PhD 16 January 2014
    What would the unemployment rate be if labor force participation rate sharply surged to a level close to that in the troubled countries of Europe? Yesterday labor market statistics for October were released. As you might remember, following the global crisis, unemployment rate had reached as high as 15 percent (please note that I will refer to seasonally adjusted figures throughout the article). The rate started declining gradually after April 2009 and hit the lowest level since 2005 in June 2012, with 8.5 percent. This was perfect news as the unemployment rate seemed to be rigid around 10 percent from January 2005 to the global financial crisis. [More]
    How shiny is Turkey’s economy?
    Fatih Özatay, PhD 11 January 2014
    If the below table is considered an indicator of how Turkish economy shines like a star, I am really concerned about the future; because if so we are toast! I am sure you remember the five countries which were expected to be hit the most by the Federal Reserve (FED) decisions: Brazil, Indonesia, South Africa, India, and Turkey. It is quite informative to compare these five countries on fundamental macroeconomic indicators especially when you add a “control group” to the picture. Mine will include China, Korea, and Russia, that is, the BRICKs not among the “Troubled Five”. [More]
    It is not necessarily trivial
    Fatih Özatay, PhD 09 January 2014
    Given the current environment, discussing this detail might seem trivial; yet it is important to consider tiny details when forecasting economic prospects. Industrial output index figures for November are released: industrial output grew after the fall in October. Such monthly fluctuations are not critical; we rather should focus on longer-term trends. Industrial output growth rates (percentage) in January-November period were 10.7 in 2011, 3.1 in 2013, and 2.7 in 2013. The evolution of the rates throughout the year suggests that output growth has shown a declining trend until the late 2012 and moved up slightly until November 2013. [More]
    Enriching the monetary policy framework?
    Fatih Özatay, PhD 07 January 2014
    Enriching the framework does not mean – I hope my former colleagues at the Central Bank won’t be offended – making a mess of it. For now, let’s put aside the developments since corruption probe of 17 December and focus exclusively on the hike in the exchange rate due to the Federal Reserve (FED) decisions, which affected Turkey along with some other emerging market economies. There is no problem if a hike in exchange rate is acceptable under your economic policy. If not, the economy management has to take counter-measures. But keeping interest rates below the inflation is not the appropriate measure for a country in which current account deficit is high, is a major concern and is accepted to originate from consumption growth. [More]
    It has become even more tangled
    Fatih Özatay, PhD 04 January 2014
    With saving instruments such as deposits and bonds having no real return, consumption was encouraged. Rumor has it that 100 truthful economists, each from a different country, were once summoned and asked to answer a simple question: [More]
    Confessions (2)
    Fatih Özatay, PhD 02 January 2014
    Net inflows to Turkey, which averaged a monthly $10 billion in the first four months of the year, declined to one fifth in the following five months About a month and a half ago, on November 23rd, I wrote a commentary titled Confessions (1). It was about a piece I had written back in the late 2012 which presented my baseline scenario for the Turkish economy in 2013. I said that the scenario did not involve any particular reference to the Federal Reserve’s (FED) third quantitative easing that considerably affected the Turkish economy starting in May 2013. So I added “It is time for self-criticism. But please hear my version of story first and then decide. To be continued soon.” Actually it is quite weird that “soon” came only a month and a half later, especially given that I write three pie [More]
    Beard or arm?
    Fatih Özatay, PhD 24 December 2013
    Some of you might say that both of our arms were already cut off before this probe. I have to say it is an argument to consider. Remember the analogy Sokollu Mehmed Pasha, first the grand admiral and later the grand vizier, was reported to have mentioned to the Venetian Ambassador: “By conquering Cyprus we have cut off one of your arms; at Lepanto by defeating our navy you have only shaved off our beard. However, you know that a cut-off arm cannot be replaced but shaved-off beard grows thicker.” I got this quote when I searched some few keywords left in my mind from the “thorough” history classes I took in secondary school. I think this is more or less the original quote reported from the chronicles. [More]