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In Our Chief Economist

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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In Our Chief Economist

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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In Our Chief Economist

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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In Our Chief Economist

America: are times a-changing?

A HUGE PACKAGE and massive growth in money supply, along with near-zero interest rates, might do the trick. And it may raise inflation indeed. Although inflation is far from being a concern globally, it is potentially important for the following two reasons: First, monetary history tells us relaxing price stability targets and/or constraints results in...

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In Our Chief Economist

Low quality and below par growth

WE HAVE BEEN WAITING FOR Godot for a entire decade, if not two or more. On the face of it there is a strong and fluid dynamic that drives the business world. Here and there old town folk who were busy trading olives now produce olive oil machines, for instance. More people export, even SMEs....

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In Our Chief Economist

Cards, debts, and capital formation

THE 1996 Nobel Laureate William Vickrey once wrote that nobody should be afraid of debt. He basically meant public debt, of course. Yet in his opinion, issuing debt was sort of akin to issuing capital. Capital-ism, I won’t hesitate to add, is better called debtism, if this view is correct. Nevertheless, we aren’t talking about...

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In Eco Analysis

The foreign reserves issue

LAST NOVEMBER, when the Central Bank Governor was replaced and the Treasury and Finance minister resigned, the backstage in Ankara was shaken by the reserve issue and allegations that President Erdogan had only just been made aware of negative reserves. Three months have passed and until last week, there had been no objections to the...

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In Our Chief Economist

2021 – The sign of the four

I HAVE TRIED to summarize four themes that might characterize 2021. The first is Trump’s legacy, or lack thereof. The second is Biden’s burden and what has to change in world trade and international politics. Third is the onset of COVID-19, both as a health issue and an economic problem as sovereign debt rises throughout....

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In Our Chief Economist

What may happen this year?

I HAVE SINGLED out two scenarios. They pertain to both global and local dynamics, which are intertwined in the days of COVID. The first encompasses a rapid amelioration of economic conditions due to the positive impact of vaccines. The second is based on a more pessimistic view that claims the outbreak won’t be easily contained...

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In Eco Analysis

2020 is over in terms of inflation, but its effects remain

THERE is a correlation, albeit not one-toone, between currency increases and price increases, particularly in producer prices. The change in producer prices is also reflected in consumer prices after a while, on a moderate scale. It should be underlined that the reflection from producer prices to consumer prices is limited due to the “structure of...

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