Download 2013 Central Bank Macroeconomic Modelling Workshop

Monetary Policy Modelling: New Directions
“Practice is ahead of theory, theory is ahead of
modelling ...” Erdem Başcı
Mehmet Yörükoğlu
Deputy Governor
2013 Central Bank Macroeconomic Modelling Workshop
November 7-8 2013, Istanbul
Contents
I. The changing role of monetary policy in the pre
and post-crisis period
II. Changes in monetary policy modelling
approach
III. Turkish experience
2
The redesign of monetary policy strategy
Challenging questions:
 How will monetary policy objectives and policy
tools evolve?
 How will financial stability considerations be
integrated into the policy process?
 What changes to the policy framework will be
adopted?
3
Pre-crisis consensus
 Commitment to a strong nominal anchor
 Inflation targeting
 Main objective: price stability
 Single instrument: interest rate
 Subsidiary role for the financial system
4
Need for a new monetary policy framework
Why a new policy framework?
 New role for central banks: avoid development
of financial imbalances
 The post-crisis economic environment is
different
 Unconventional policy instruments
5
Decoupling
 The traditional monetary policy framework was
embraced by both emerging and developed
countries
 The crisis created a decoupling
 Problems and policy responses differed among
developed and emerging economies.
6
Crisis experience: Developed countries
Problems
 sharp decline in growth,
 deflationary pressures,
 liquidity problems.
Measures
 large-scale balance sheet policies,
 provision of ample liquidity,
 buying risky assets,
 forward guidance...
7
Crisis experience: Emerging economies
Problems
 volatile cross-border capital flows,
 exchange rate appreciation,
 rapid credit growth.
Measures
 increasing bank reserve requirements,
 restrictions on credit market,
 taxing capital flows...
8
Capital flows
Financial Instability Cycle for an Emerging Market Economy
Improvement in
Risk Perceptions
Capital Inflows
Currency appreciation
Easier external finance
External Borrowing
Balance sheet
effects and easing
credit standards
 Capital flows affect economy significantly mainly through
credit and exchange rate channels.
9
Turkish Experience
10
Financial Stability Concerns: Credit Growth
Total Loan Growth Rates
(13 Weeks Moving Average, Annualized, FX Adjusted, Percent)
60
45
30
15
0
-15
0111
1110
0910
0710
0510
0310
0110
1109
0909
0709
0509
0309
0109
1108
-30
Source: CBRT.
 Fast credit growth...
11
Financial Stability Concerns: Current Account
Current Account Balance
Main Sources of Current Account Deficit Finance*
(Seasonally Adjusted, Quarterly Average, Billion USD )
(12-months Cumulative, Billion USD)
2
80
1
70
Portfolio and Short-Term*
FDI and Long-Term**
Current Account Deficit
60
0
50
-1
40
-2
30
-3
20
-4
10
CAB
-5
0
-6
CAB (excluding energy)
-10
-7
4
1
2
3
4
1
2008
Source: TURKSTAT, CBRT.
2
3
2009
4
1
2
3
2010
4
1
2011
2007:09
2007:11
2008:01
2008:03
2008:05
2008:07
2008:09
2008:11
2009:01
2009:03
2009:05
2009:07
2009:09
2009:11
2010:01
2010:03
2010:05
2010:07
2010:09
2010:11
2011:01
-20
-8
*Short-term capital movements are sum of banking and real sectors' short term
net credit and deposits in banks. Long-term capital movements are sum of
banking and real sectors’ long term net credit and bonds issued by banks and
the Treasury.
Source: CBRT.
 Current account deficit widened significantly
 Most of CA deficit was financed by short-term capital flows
12
Financial Stability Concerns: Exchange Rates
TL and Other EM Currencies Against USD
Real Exchange Rates (ReR) in Turkey
(9 March 2009=1)
(2003=100, Logarithmic scale, Reverse order)
4.68
1.1
20% - 80 % Interval of EM
4.73
EM Average
1
Turkey
4.78
0.9
CPI Based ReR
4.83
Long-term Linear Trend
0.8
4.88
Oct-10
Aug-10
Jun-10
Apr-10
Feb-10
Dec-09
Oct-09
Aug-09
Jun-09
Apr-09
Feb-09
Dec-08
Oct-08
7-Sep-10
27-Jul-10
15-Jun-10
4-May-10
23-Mar-10
9-Feb-10
28-Dec-09
16-Nov-09
5-Oct-09
24-Aug-09
13-Jul-09
1-Jun-09
20-Apr-09
9-Mar-09
0.7
EM countries are Brazil, Chile, Colombia, Czech Republic, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines, Poland,
Russia, South Africa, South Korea, Taiwan and Thailand.
Source: Bloomberg, CBRT.
 Nominal currency appreciated around 20 percent, moving together with other
EM currencies
 Real exchange rates appreciated significantly compared to its long-term trend
13
Modification of inflation targeting regime
Adopting financial stability as a supplementary
objective.
Enriching the set of policy instruments:
 wide assymmetric interest rate corridor,
 reserve option mechanism.
14
Interest Rate Corridor
15
30/09/11
28/10/11
25/11/11
23/12/11
20/01/12
17/02/12
16/03/12
13/04/12
11/05/12
08/06/12
06/07/12
03/08/12
31/08/12
28/09/12
26/10/12
23/11/12
21/12/12
18/01/13
15/02/13
15/03/13
12/04/13
10/05/13
07/06/13
05/07/13
Reserve Option Mechanism
Reserve Option Coefficients
Use of the ROM
Upper Bound of FX for ROM
Use of ROM
60
60
50
50
40
40
30
30
20
20
10
10
0
0
Source: CBRT.
16
Results: Credit growth
Total Credit Growth (%)
Commercial Loans
Total Loans
Consumer Loans
0913
0713
0513
10
0313
10
0113
15
1112
15
0912
20
0712
20
0512
25
0312
25
0112
30
1111
30
0911
35
0711
35
0511
40
0311
40
0111
45
1110
45
 Credit growth is contained.
17
Results: Current Account
Current Account Balance
Main Sources of Current Account Deficit
Finance*
(12-month Cumulative, Billion USD )
(12-months Cumulative, Billion USD)
CAB
CAB (excluding energy and gold)
CAB (excluding gold)
30
30
Source: TURKSTAT, CBRT.
0913
0513
0113
0912
0512
-90
0112
-90
0911
-70
0511
-70
0111
-50
0910
-50
0510
-30
0110
-30
0909
-10
0509
-10
0109
10
0908
10
Source: TURKSTAT, CBRT.
*Short-term capital movements are sum of banking and real
sectors' short term net credit and deposits in banks. Longterm capital movements are sum of banking and real
sectors’ long term net credit and bonds issued by banks and
the Treasury.
 Significant improvement both in the level and financing of the current
account deficit.
18
Results: Exchange Rate
TL and Other EM Currencies Against USD
(1 November 2010=1)
EM Currencies
(with 20%-80%
band around the
mean)
Implied FX Volatility (1-month)
Turkey
 Correction of the initial overvaluation in the currency.
 Low volatility of currency relative to peer emerging countries.
19
Overview
 Practice is ahead of theory; theory is ahead of
modelling ...
 Incorporating financial stability along with the price
stability, and a better management of global spill-overs
 The crisis stimulated research on incorpotating the
interactions between financial market imperfections and
the real economy in policy models.
 To understand the transmission of unconventional
policies empirically, future research should continue to
exploit the experience of central banks in the last five
years.
20
Thank You.
Mehmet Yörükoğlu
Deputy Governor
2013 Central Bank Macroeconomic Modelling Workshop
November 8, 2013, Istanbul