Thursday, April 29, 2010

Addendum to Tuesday's Roubini post

On Tuesday, I noted, in a blog post (sorry, no hyperlinks because I am on my Bberry, but: that demand pressures might be building up, which could lead the Central Bank to early rate hikes.

The Bank, on the other hand, adopted a rather dovish tone, while at the same time revising its year-end inflation outlook significantly upwards. This leads me to question what the CBT is targeting, after all (inflation, growth, the Prime Minister's happiness, etc), which I will devote some time if I decide to write my weekly Hurriyet column on this issue.

But all this led a friend, who was asking me on Lira's prospects, on what the hell is going on: Well, the Bank is playing the credibility game, which is also known as the James Dean chicken game (Rebel without a Cause-

But that game has two pure strategy equilibria, one which the markets cave in, and one which the CBT caves in. As for mixed strategies, I am really getting mixed up now- find a real micro theorist for that:)...

But if you are wondering the opinion of your friendly neighborhood economist, I am getting slightly more inclined towards the Bank swerving from the road...

Coming to more mundane matters, this situation really complicates Lira's prospects. To reflect market sentiment, I'd like to share a small anecdote:

I sometimes get questions from friends on investment strategy. These clueless souls probably don't know that the predictive powers of economists are not very high. Or maybe they do and their strategy is simply doing the opposite of what I tell them.

Anyway, one friend approached me recently to tell he was thinking of selling dollars, while another gtalked me a couple of days later to ask when would be a good time to buy dollars.

Maybe, I should have got them together, getting a nice commission in the process and jump-starting my brokerage house in the process...
Sent by BlackBerry Internet Service from Turkcell


TARIK said...

why do you think the cbt is swerwing off the road?because cbt is not sticking to its policies to reduce the inflation?if so why is not doing so?
the economy is on its way to recover,so i guess the inflation should be increasing a little bit,what is expected to cbt is to bring the inflation under control if it gets out of control?
can you explain why the credibility of cbt is questioned?
note;i know this is not a class so if you have anytime to answer ,thanks,if no,thanks again

Emre Deliveli said...

Please see here:

and here as an addendum:

Feel free to write if you have further questions; I always try to answer as much as Uncle Time allows me to...

TARIK said...

thanks...after i read it all,it got much clearer to understand.