Open letter to the Central Bank of Turkey
No, it’s not a job application this time around, but just to beg them to change the current method of conducting expectations surveys.
The latest of the Bank’s bi-weekly expectations surveys came out today, and there isn’t anything really interesting, except the ongoing inconsistency between the end-year current account deficit, or CAD, and growth expectations:
There is no way Turkey can grow 5.5 percent this year and end the year with only USD 66bn of current account deficit. To state this differently, if Turkey is to end the year with a CAD of USD 66bn, its growth would have to be much less than 5.5 percent. Note that the CAD is already at USD 63.5bn:
So to keep the CAD at more or less the same level, export growth would not only catch up, but also surpass import growth, unless you are making some weird assumptions about the exchange rate and/or oil prices:)
Note that this happens in Turkey when the capital-flow based growth is disrupted and the economy slows down, as happened in 2008-2009…
Of course, it is normal to have some discrepancies in the survey results, as they are averages, but still, I have serious doubts on how seriously the respondents are filling these surveys, especially because I was one of the respondents as Citi’s Treasury economist back in 2006-2008:) I used our current forecasts for all the variables except the bond rates, where I asked our bond trader, who just said how he felt like it:) I mean, how is he supposed to know what will happen to Treasuries 5 months down the road anyway:) And I am sure most respondents are less diligent than I am.
I really don’t have a better suggestion, except the general comment that he respondents have to have some incentives to provide accurate forecasts, but I am sure that the current expectations surveys are not reliable. Not only because it is hard to forecast, but also because some of the respondents could just be firing numbers at will, because they HAVE to fill out the survey, but they have no forecasts for some (or all) of the variables. So maybe they are just looking at the current level of the CAD and just making up a number near that:
I rest my case!…
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