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    Apart from what the Central Bank has done...

    Fatih Özatay, PhD09 April 2009 - Okunma Sayısı: 1270


    The academic study I have been working on for a while has turned into an article and has been sent to relevant agencies. Before starting to work on another article, it is necessary to take a break for a couple of days to tidy up the worktables at work and at home, to file the articles and worksheets used, take a copy of the article and the computer program including the computations made during the study and of course to have a peace of mind. Because, the future work schedule is loaded. It is time to effectuate the project on writing a book about financial crises; a couple of old studies will be reorganized; new academic semester is starting and I will offer a course; and some of the topics of the researches at TEPAV must be seized. Moreover, I have to put Erdal and Gülbin into motion to complete our joint study that was left unfinished last year.

    A way to take a rest is to surf on the internet and see what my colleagues are onto. For example, what have they recently written on the crisis issue? While I was surfing online last night, I ran across a short story comparing the Great Depression with the last financial crisis at ( (it is written by Eichengreen and O'Rourke).

    They focus on six indicators: world production, world trade volume, changes in world stock markets index, interest rate policies of major central banks, monetary expansion in large countries and fiscal policy in those countries. The comparison is made for the period following the point where the economic activity volume begins to fall down: The period from April 2008 until now (nine months are included in the study) and the period after August 1929 (nine months and the aftermaths) are focused on.

    Taking departure from a simple graphical analysis, it is possible to ask an important question and search for the answer of that question. Fall in world production, world trade volume and world stock markets indexes were equally intense in both periods. It is doubtless that the Great Depression does not last for nine months; it intensifies and it takes a long time for the world economies to recover.

    In fact, this is the question the short article I mentioned above asks: Will the aftermaths of this crisis resemble the Great Depression? Will the world economies contract further? The authors examine the other three indicators to answer this question; i.e. is the policy response back then and current policy response similar or different in any ways?

    Yes, policy responses differ significantly: Both the monetary policy and fiscal policy are too loose to stimulate demand when compared to the Great Depression period. In strong world economies, interest rates are reduced nearly to zero; monetary expansion as well as fiscal expansion is too high when compared to 1929. Then, does this answer the frequently asked question; i.e. 'Did we leave the worst part behind?' The authors say they will answer this question soon; but I do not think that their answer will be a 'crystal clear yes'. At most, they will be more hopeful than they were a few months ago.

    Unfortunately, the things that can be said for Turkey in the same context are highly limited. A number of measure packages are pretended to be announced. Really, what significant step else apart from the steps taken by the Central Bank has been taken in Turkey to stop the downturn in production?


    This commentary was published in Radikal daily on 09.04.2009