Commentaries
Fatih Özatay, PhD - [Archive]
But, everyone makes mistakes 04/04/2010 - Viewed 1146 times
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Basis |
S2 |
S3 |
S4 |
S5 |
* |
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Real % change in the end of 2009 compared to the end of 2008 |
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Public expenditures Export of goods and services Corporate credits Consumer credits |
7.5 -9.8 -2.6 -1.1 |
7.5 1.2 -2.6 -1.1 |
7.5 -9.8 0 0.8 |
7.5 -5.2 0 0.8 |
7.5 -5.2 0 0.8 |
5.1 -5.4 3.1 8.9 |
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Last quarter average of indices |
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Real sector confidence Foreign risk appetite (VIX) Rate of contraction (%) |
62.6 52 6.5/8.5 |
62.6 52 3.4/4.9 |
75 53 5.6/7.6 |
95 40 4.8/6.3 |
95 40 3.3/4.6 |
92.5 23.1 4.7 |
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Note: (*) represents the realization |
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It is now time to confess following the interpretations on the gross national income figures for 2009. Almost thirteen months ago at this column (on 9 March 2009), I have my growth estimations for 2009 with the title 'Please do not read this if you do not want to get upset'. Those estimates were reached on the basis of a technical model. Under the basis scenario, rate of contraction in 2009 was estimated to be in the 6.5-8.5 interval. On the other hand, scenario 5, the most optimistic one, estimated a rate of contraction between 3.3 and 4.6 percent.
The method was as follows: I constructed simple model using quarterly data for the period between 1998 and 2008. The simplicity of the model enabled focusing solely on growth. The model constituted of four equations defining imports of goods and services, private investment, private consumption and national income. And estimations were based on the alternative scenarios built upon data for exogenous variables for the period between the first quarter of 1998 and the third quarter of 2008. Scenarios have the following assumptions as quoted:
"The basis scenario shows the case where the current 'unfavorable situation' continues. Second scenario (S2) is not 'viable': It shows what would have happened if the real value of exports of goods and services did not fall but rise by 1.2 percent as compared to 2008. In the third scenario, some tiny steps are taken (for example external funding need of the public sector is fulfilled) and confidence is gradually improving. Under the fourth scenario, things recover slightly: Credit tightening is gradually eased as of the third quarter and achieves the 2008-end real value. Confidence of the real sector is improved significantly. Risk appetite of foreign investors recovers even slightly. Under the final scenario (S5), in addition to S4, exports increase to a certain extent in the second half of the year." At the end of the commentary, two tables were given the latter of which I will represent again. It shows the growth rates under the alternative scenarios. The scenarios show only the 2009 end value of the exogenous variables. This time I added the realizations column to the table so that we can make comparisons.
Table 1: 2009 scenarios (assumptions and estimates by 9 March 2009) and realizations
The significance of the estimations depends mainly on to factors. First is the solidness of the model and the extent to which it represents the functioning of the economy. I will skip this as it is a technical matter. Second is related with the extent to which the assumptions on the exogenous variables given in the table are realistic. Realizations about the exogenous variables are closer to the last scenario. However, the last scenario is still more pessimistic considering the credit expansion and risk appetite of foreign investors. On the other hand, it successfully estimated the public expenditures.
I will not make any comments. I just wish you forgive me for the mistakes in the estimations.
This commentary was published in Radikal daily on 04.04.2010
