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    Will the USD hit under 1.92 TL by the end of the year?

    Fatih Özatay, PhD29 August 2013 - Okunma Sayısı: 925

    Chairing a central bank is a craft, to be executed with wisdom, not algorithms.

    “Don’t be surprised if the US dollar hits under 1.92 TL by the end of 2013” said Central Bank governor Erdem Başçı in his speech broadcasted live by economy news channels Tuesday morning.

    “What is economics good for?” This question titled an article in New York Times three days before Erdem Başçı’s speech. We are talking not about a country economy but economics as a discipline. Two authors of the article are professors of philosophy: Alex Rosenberg and Tyler Curtain.

    One of the critical findings of this article which triggered a series of debates is as follows: “The trouble with economics is that it lacks the most important of science’s characteristics — a record of improvement in predictive range and accuracy... When we put a satellite in orbit around Mars, we have the scientific knowledge that guarantees accuracy and precision in the prediction of its orbit... Economics has never been able to show the record of improvement in predictive successes that physical science has shown through its use of harmless idealizations. In fact, when it comes to economic theory’s track record, there isn’t much predictive success to speak of at all.”

    As quoted “loosely” above, authors suggest that due to the above reasons, it has become an obsession among philosophers of science why economy fails as a science. Then, they ask the question in the title: “What is economics good for?” Fortunately for me as a professor of economics, they don’t claim that is it completely useless. They point at the contribution of the discipline of economics to the design and management of institutions (for instance, the need to fix monopolies and the construct the relevant institutional design, auction systems, central banks’ open market operations etc.).

    In conclusion, they refer to recent debates on who will serve as the new chairman of FED, and say, “An effective chair of the central bank will be one who understands that economics is not yet a science and may never be.” Then they successfully identify a reality which anyone that has even accidentally worked at the decision-making position in an (independent) central bank: “(chairing a central bank) is a craft, to be executed with wisdom, not algorithms.” Here, wisdom refers to the feelings on the course of the national economy.

    Anyway, will dollar hit down to 1.92 TL by the end of the year? If the Central Bank governor estimates so, he does not do that on the basis of the science of economics. Indeed, predicting the value of the exchange rate in the near future is one of the areas where the prediction performance of economics is the weakest. This prediction is based most probably the experiences in 2001, 2006 and 2011 (when exchange rate first hiked and then decreased or remained constant) or on the feeling that the current international tensions will prove temporary.

    Are the tensions indeed temporary? I have previously said that I beg to differ. I will elaborate more on this next time.

    This commentary was published in Radikal daily on 29.08.2013