The Central Bank’s actions might work in the adverse direction
Fatih Özatay, PhD
29 January 2011
'The BRSA must step in. Otherwise might appear the risk that the steps by the CB not only proves ineffective but also works in the adverse direction.' I am getting quite board of writing on the Central Bank of Turkey's (CBT) policies. I have already announced that I have submitted the textbook I have been working on for long to the publisher. Since the book is on monetary economics, I referred to the CBT several times throughout the book. For instance to form the index of the book, I searched for the abbreviation with boredom. It was the deadline and I had to send the book to the publishers immediately. And the search program I was using stopped responding quite frequently. I was quite bored of seeing the abbreviation everywhere. What is more, the new monetary policy framework was announce
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What does the CBT do?
Fatih Özatay, PhD
27 January 2011
The CBT has not yet introduced required reserves for weekly borrowing from the CBT. The Central Bank of Turkey (CBT) employs inflation targeting regime to enable price stability. It has two targets: to ensure that the inflation rate stands close to the target and that production level converges to the potential. On the basis of the characteristics of the economy (the factors that affect the inflation rate and the level of production) and the targets stated above give a policy rate response equation is derived. Interest rate responds to the difference between actual and potential production level, the real value of domestic currency, foreign real interest rate and shocks affecting supply and demand.
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Who will make the decision? The MPC or the General Assembly?
Fatih Özatay, PhD
25 January 2011
Monetary policy is founded on two pillars. Interest rate decisions are made by the MPC, required reserve ratio is set by the General Assembly. Yesterday the Central Bank of Turkey (CBT) has announced the decision on the required reserve ratio. As was also stated before, the ratio was raised for the short term liabilities of banks and kept for the long term liabilities.
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Unemployment rate and monetary policy
Fatih Özatay, PhD
22 January 2011
In my last commentary I stated that inflation targeting regime aims to keep inflation rate at the targeted level and unemployment are at a rate considered to be 'normal'. Of course which one of these two aims are prioritized depends on the state of the economy at the questioned period.
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Monetary policy and the status quo
Fatih Özatay, PhD
20 January 2011
Monetary policy facilitates change in the status quo. The status quo cannot be influenced via interest rate policies. Finally in yesterday I have sent the textbook I have been working on for more than a year to the publisher firm. I hope that I have nothing to do but control the next rehearsal. 'I hope' because over the last months I read nothing but academic articles that would be of use for the book. In a book or symposium report, I cannot remember which one it was due to the above mentioned fact that I read nothing but academic articles on my book, I came across a discussion about how important it is to abolish the inflation targeting. I have heard about this argument also in another platform recently.
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Stability
Fatih Özatay, PhD
18 January 2011
If we are proud of the stability Turkey achieved, we have to take a look back. Are we contended or not? Today let me begin with a question that I am obsessed about recently: is securing stability sufficient? The day before, the lower-screen sidebar, the classic of economic news channels, said that Portugal and Italy have accomplished to sell some amount of bonds: Thank God, they have survived 'successfully' the auctions that have been waited with anxiety. The countries have taken a big step to finance their budget deficits. What is more, financial investors did not even charge extra interest fees. Interest on bonds stood below the 'threshold limit'. How perfect.
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Others' perceptions and growth
Fatih Özatay, PhD
13 January 2011
Many EU countries struggle with public budget deficits and public debt whereas Turkey does not have significant problems in this respect. In the market economy of the East, surveys on consumer and investor confidence are conducted and the results are used to generate indices. There is an important motivation for this: there exists a significant correlation between the consumption the private sector is planning to make and the confidence in the economy. Even if your income remains constant, interest rate does not change, prices do not move or your wealth does not improve, you might still increase consumption if you are hopeful about the future. On the contrary, if you believe that things are worsening, you might prefer to save some money out of fear.
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Suleiman the Magnificent and the resource problem
Fatih Özatay, PhD
11 January 2011
We have to initiate a number of reforms in order to alter the status quo which Suleiman the Magnificent would not like. Last week officials of the ruling party raised some criticisms about the new economic policy proposals the CHP (Republican People's Party) declared as a part of their new economic program. The criticisms raised were mainly about how the necessary resources will be generated. Today I want to focus on two things that the questions about how to generate funds raise in my mind.
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Why do we need additional measures?
Fatih Özatay, PhD
06 January 2011
We can expect to hear new policy decisions. I am looking for an answer to the question I put on Monday: Will the measures introduced by the Central Bank of Turkey (CBT) and the Bank Regulation and Supervision Agency (BRSA) enable a slowdown in the hike in credit demand? In fact statements by the Central Bank when declaring the decisions and New Year's greeting speech by Minister Ali Babacan sort of give an answer to this question. The common feature of the statements is that new decisions are soon to come.
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Distinguishing feature of the economy in 2010
Fatih Özatay, PhD
03 January 2011
Different than 2008 and 2009, current account deficit was financed through short term fund inflows in 2010. Now it is time to answer the question on the most distinguishing feature of the year 2010 considering Turkey's economy. It is actually quite an easy question to answer: In 2010, the channel of financing current account deficit changed radically. And unfortunately this change is in the adverse direction and highly dangerous.
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