Inflation expectation channel… According to May inflation data, the CPI increased by 73.5% on an annual basis, while the increase in PPI was 132.2% in the same period. The level of inflation and the expectation channel, which increases the signs of deterioration from month to month, cause many international organizations to revise their forecasts for Turkey accordingly. Considering the situation in terms of demand and external effects that harm growth dynamics, it can be expected that the following period will be the scene of more concern about the stagflation effect. Under all these conditions, the competence of heterodox policy practices, which are frequently discussed by economic circles in Turkey, in solving inflation should be analyzed correctly. The policy set implementation on this issue reveals that Turkey adopts a different perspective when compared to the practices of many countries' central banks and fiscal policy authorities.
Heterodox policy perspective… The implementation of heterodox policies is based on a market approach, which is implemented with a more central orientation. In this context, the general focus of economic policies is towards growth.
In this direction, expansionary fiscal and monetary policies are implemented to keep the public expenditure channel active, to encourage individuals to spend and to reduce borrowing. For example; Heterodox policies include centralized price controls and fixations to reduce inflation, controls other than the free foreign trade regime (such as quota, import restriction with non-tariff, non-economic practices), price and wage freezing practices, and using tools other than foreign trade.
Fixing the prices of goods and services that are expected to find a balance with the supply and demand formed in the free market in income and expenditure controls is a heterodox policy application used in the fight against inflation. While it is aimed to prevent demand inflation that will occur in the axis of the expenditure wave caused by the increase in real wages and operating costs, it is desired that prices are not affected by global prices or components such as exchange rate and interest. In supply-related factors, it is aimed to transfer the surplus to the domestic market by restricting and complicating exports in certain groups of goods, and to loosen prices by relieving the supply of goods. It is desired to prevent demand inflation by controlling real wages, and cost inflation by price control. In consumer goods; Control practices are introduced to limit imports and final consumption, and it is desired to reduce the current account deficit by reducing imports.
Orthodox policy perspective… Orthodox economic policies; works according to generally accepted principles. In addition to traditional practices, it is on the axis of practices that have been tested and accepted as a model by economic sectors on the basis of cause-effect relationship. While monetary policy and fiscal policy are handled as two main groups, Orthodox policies can also be handled in sub-branches related to foreign trade, economic planning and other policies (financial supports, sectoral incentives, crisis measures, liquidity management, etc.). Universal; the balance of prices on the axis of supply and demand, adherence to the free market and foreign exchange regime, compliance of exchange rates and interest rates with market conditions, and implementation of objective expansionary or tightening policies in necessary conditions, depending on economic priorities (growth, inflation) on this axis.
Approaches to the monetary policy axis… The lower layers of monetary policy may also be subject to orthodox or heterodox practices. The Central Bank regulates the main and secondary policy instruments such as liquidity, demand, credit mechanism, money supply and controls short-term interest rates. At this stage, results such as raising interest rates in order to reduce inflation, reducing the money supply, limiting credit growth within the control area are contractionary policy grounds that will help price stability. Practices and results such as lowering interest rates to accelerate the economy, reducing borrowing costs of companies, accelerating credit outflows and accelerating the money cycle with increasing consumption point to the path of expansionary policies. In this economic cyclicality, not all conditions are fixed and attention must be paid to the conflicting thresholds of economic targets so that factors such as growth, inflation and interest do not form a spiral. Care should be taken to ensure that the interest rates applied in the monetary policy are compatible with the country's inflation, risk premium and market conditions, and cause-effect analysis should be tested correctly. A certain period of financial tightening may be required for financial easing to take place comfortably. This is a roadmap that will allow lowering of interest rates in order to ensure price stability, lower market rates and pave the way for growth.
In heterodox practice, keeping interest rates at levels unpredictable by market conditions, spreads that will allow arbitrage with speculators due to price and interest differences, and unusual practices that may lead to excessive financial volatility and unpredictable economic balances can create risks. One of the factors that can be shown as an example of this; using lateral policy tools as the main policy tool or trying to control the monetary transmission mechanism together with central control. The focus here is usually on lowering interest rates. However, the way to reduce interest rates organically is through the improvement in inflation and risk profile.
Conclusion? Orthodox policies deal with the liberal approach with generally accepted economic foundations and market freedom and private enterprises and analyze the macro balances that affect each other through causality. In heterodox policies, on the other hand, a more dominant approach created with the guidance of the state is discussed. The main issue here is whether the state will adopt the leadership, the role of encouragement or the way of pressure and control towards the state. It is essential that the aims of heterodox policies are explained in a transparent manner and objective data and analyzes regarding the planning results are presented.
Heterodox economic policies are not common practice in purely liberal economies. In the past, in some countries, including Turkey, heterodox practices have been made in extraordinary situations in the economy and within the scope of emergency measures. From this point of view, we can say that the implementation ground has been established for a temporary period and is made in the form of a "short-term normalization abnormal policy".
The relationship between growth and inflation has been discussed in different ways in different periods in the economics literature. Today, the generally accepted view is that inflation negatively affects growth in the medium and long term, so price stability should be prioritized. Many economy actors experience difficulties in determining prices and budgets due to high and fluctuating inflation, and fluctuations and changes in spending and investment preferences accordingly. Here, we can talk about the negative growth effect caused by the uncertainty environment created by inflation for both individuals and institutions. As an inference from this; Increasing the growth potential in the economy depends on eliminating medium and long-term uncertainties created by high and fluctuating inflation.
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Hibya Haber Ajansı
