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    Will the Lira strengthen in 2012?
    Fatih Özatay, PhD 07 January 2012
    For Mr. Başçı's expectations to prove right, the Fed has to continue the monetary expansion and the European economy has to recover. I learned about the speech the Central Bank (CBT) Governor Erdem Başçı delivered in Bursa after I was requested to state my opinions from by two different newspapers. Then I read an extended review of the speech on the CBT website. Two points Başçı emphasized attracts attention. First, he said, “2012 will be a year in which the Turkish lira is one of the currencies that strengthens the most.” Second, he maintained that the high current account deficit that Turkey has been suffering for the last couple of years stemmed from the abundant and cheap sources of finance (if the summaries were correct of course). He made this point to stress that the argument that o [More]
    Why seek adventure?
    Fatih Özatay, PhD 05 January 2012
    Why not strengthen the inflation targeting regime taking into consideration the current circumstances rather than abandoning it? Table 1 shows the inflation targets, inflation realization and growth rates for years between 2002 and 2011. The table also provides the deviation of growth from potential and of inflation from the target. I assumed that the potential growth rate was 4.7 percent. The examined period can be divided into four sub-periods: [More]
    A memory from 2004-2005
    Fatih Özatay, PhD 03 January 2012
    Back then, the CBT met several times with the Banking Regulation and Supervision Agency (BRSA) to call it for supporting monetary policy. In this first commentary of the new year, I want to travel back to the 2004-2005 period. Along with the global crisis, the opinion that monetary policy must focus relatively more on financial stability gained ground. Currently, central banks are searching new policy mixtures and academics are conducting various studies at full speed. For example, you come up with thousands of studies conducted in 2011 when you search the keywords “financial stability-monetary policy” at Google academics. [More]
    Steps to avoid in 2012
    Fatih Özatay, PhD 31 December 2011
    Which policy does the rate which the CBT calls the “policy rate” refer to? What is the goal of that alleged policy? There exists a huge uncertainty concerning monetary policy. Inflation rate varies around 10 percent. The Central Bank of Turkey (CBT) argues that after moving around this level for the next couple of months, inflation will decrease sharply and converge to the target by the end of 2012. Thus, the CBT expects a convergence to the 5 percent inflation target “from above.” [More]
    This is way too much
    Fatih Özatay, PhD 29 December 2011
    Why did the CBT choose to cut the rate at fist and double almost double the rate and initiate FX selling auctions two months later? On Tuesday I reiterated my opinion that the headline of the domestic economic policy in 2011 was the new monetary policy of the Central Bank of Turkey (CBT). On the very same day, the CBT shared with the public the monetary policy framework decided for 2012, as it has been doing since 2002. The framework does not differ much from the one that the Bank has implemented since August 2011. Today, I would like to address an unfortunate controversy in the report the Bank released. This controversy successfully summarizes why the monetary policy implemented throughout 2011 was extremely complex and confusing. [More]
    Lessons from 2011
    Fatih Özatay, PhD 27 December 2011
    Central banks can implement an inflation targeting regime that also safeguards financial stability using old policy tools and the old policy framework. 2011 was a very interesting year. The headline was the new monetary policy of the Central Bank of Turkey (CBT). This attempt was debated widely and assessed vastly by many columnists, including myself. In these last days of 2011, I want to assess the new monetary policy of the CBT once again, but with a different perspective this time. [More]
    There is room for fiscal expansion if necessary
    Fatih Özatay, PhD 24 December 2011
    Countries that have a low public debt ratio have a larger room to react against economic contraction. The Medium Term Program, the OECD and the IMF’s estimated the Turkish growth for 2012 at 4 percent, 3 percent and 2 percent, respectively. A sharp drop in growth rate is expected for two reasons: First, almost half of Turkey’s exports go to Europe, whose troubles imply a fall in imports from Turkey. Second, European banks are expected to lower credit supply substantially which means that it will be more difficult for Turkey to access foreign funds. The balance of payments figures for the last couple of months revealed this, as well. [More]
    Pessimistic speculations about China
    Fatih Özatay, PhD 22 December 2011
    In a country like China which has such a low household consumption rate, who is supposed to buy the goods and services to be produced with the huge capacity developed via rapidly growing investments? While everyone is fixated on Europe, some experts are persistently warning that things are not going on track in China lately. I read four commentaries in this direction in the last three weeks. The one I will refer to today was highlighted on Bloomberg website on December 19. The author stresses that the actual credit risks of Chinese banks are higher than declared. One of the main sources of the risks goes as follows: local governments initiated large construction investments in order to minimize the impact of the global crisis. Though those investments are financed someway, the risk is afte [More]
    Who wants Kim?
    Fatih Özatay, PhD 20 December 2011
    Why do the North Korean people fail to overthrow the dictatorship which has been confining them to death of starvation for decades? On the North Korean channel yesterday, a brunette lady with short hair wearing black clothes was reading what is written on the paper she holds, with tears in her eyes. What she read was the death knell of Kim Jong-il, the leader of North Korean. The news channel screening the broadcast via the North Korean TV also broadcasted a military march past from North Korea. Soldiers in goose steps were saluting their leaders stridently. On the next scene were missiles with nuclear warheads passing by Kim Jong-il.  Deaths of starvation Another channel announcing the death of Kim Jong-il was reporting that two million North Koreans died of starvation. Some argue that [More]
    Need for a new economic program (5)
    Fatih Özatay, PhD 17 December 2011
    The level and quality of education as well as the technological content of production and export must be enhanced remarkably. Let me continue the series on the “need for a new economic program” where I stopped last time. The series started with the growth-unemployment correlation and proceeded with growth-current account deficit and savings gap of Turkey. Today I want to address another important challenge. [More]