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Inter- and intra-party alliances in Turkish politics

THE ARCHETYPICAL model of political competition is the Downs equilibrium. Originally it was the Hotelling model of spatial competition between firms. The Downs equilibrium is also known as the median voter theorem (MVT). It has been understood after the fact that the model yielded a Nash equilibrium in pure strategies, or in complicated versions it...

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Can America lead the way?

ONCE AGAIN America is leading the way. The direct income support stimulus packages are piling up, indirect tax incentives are also accumulating. Biden isn’t stopping, and apparently won’t stop before getting the country out of crisis for good and maybe even provide a welfare buffer zone ahead of his one-term service time. Good, but is...

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Dilemmas in and after the time of the pandemic

AS I HAVE CLAIMED BEFORE, an old style balance of payments crisis isn’t in the cards. However, an FX funding squeeze is a flat, open, crystal-clear reality, and there is more to come. It isn’t only the current account deficit that matters, nor do tourism revenues – or lack of it thereof. It is the...

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Stranger things

Incoming data suggest there are incongruities almost everywhere. There is no way so many jobs could be created in a business world surrounded by so many uncertainties. Indeed, industrial production figures don’t square with employment data. Inflation is another conundrum. The real issue isn’t whether inflation is about two times higher than the official print....

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Is inflation truly important?

YES, IT IS. IT IS SO ESPECIALLY in an economy where head-on CPI inflation is a lot higher than what it was, say, 17 years ago. Hence, a decade and a half of ‘inflation targeting’ didn’t end up anywhere near the target. It is also important for the advanced world, and they take it seriously...

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A panorama of 2021

FIRST, industrial production is still strong but has been losing steam since of February – already. Calendar- and seasonally-adjusted production is flat. Second, unemployment is very high and, according to the broad definition, almost up to 30%. More accurately, it stands at 28.9%. Third, inflation is high and even rampant in the short run. It...

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Snap elections and other possibilities

THE SITUATION IS AWKWARD, even by the Turkish standards. Clearly neither inflation is under control nor is the exchange rate. And yet there is talk about rate cuts. This could only lead to a ‘chaotic’ trajectory – in the technical sense. This means non-linearity, complex dynamics and eventually chaos. Because the exchange rate is by...

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Interest rates and exchange rates

THERE IS NO ONE-TO-ONE correspondence between the rate of interest and the exchange rate. Still, more often than not the rate of interest is the only variable that can control the exchange rate. Thus, it is possible to defend the currency, both under a peg and under the float, up to a certain threshold beyond...

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What do central banks do? Or do they?

AS I PEN THIS, London interest rates on overnight s aps for TRY hit 1400, the highest in a decade. That may have limited the first impact on the level of the TRY/USD exchange rate. Because foreign banks demand TRY so they can sell and turn to dollars – and run – TRY scarcity has...

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Fixed income, Fed, and CBRT

THE SPREAD BETWEEN US 2-year and 10-year notes was 0.37 exactly a year ago. Now it stands at 1.47. This kind of normalization entails a strong expectation of genuine recovery, especially after the Biden bill passed. It also underlines a reflation scenario. With fiscal packages amounting to USD 5tn, nearing a quarter of the U.S....

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