Tuesday, March 23, 2010

Roubini Post: The Rite of Spring

This post already appeared in the Hurriyet Daily News on Monday; Europe Economonitor is just republishing it, but I just wanted to cross link for the readers who might have missed it the first time around...

But while I am at it, I would like to add in a few points, which I could not mention in the article because of Hurriyet' strict 3,700 character limit (the article is also published in the hardcopy paper): In the article, I mention the latest unemployment and fiscal figures as the dissonances, asymmetries, polytonalities and polyrhythms of the Turkish data, but they are not the only ones. The latest industrial production figures, which showed that the improvement there almost came to a halt in January, after seasonality and working days adjustment, is also baffling.

But the biggest confusion there is credit. I plan to delve into the issue deeper in my next Hurriyet column, but there are two main issues: First, most analysts see credit as a leading indicator, which is not, neither in theory nor in practice. In theory, the effect of credit is as a financial accelerator and when you actually do simple causality tests and VARs, you don't see any effect going from credit to the real economy. Second, Turkey economists tend to make too much of the quantity of credit and not enough to its price (i.e. interest rates), which is very unfortunate, as price tells us two important things: 1. It lets us to discern supply and demand effects from quantity. 2. Interest rates, when benchmarked, could give us important signals about financial markets. But I don't want to give too many spoilers...

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