From the New York Times
Last week, Turkey’s central bank surprised investors by raising a key interest rate to 10 percent from 4.5 percent. It was a bold move to rein in inflation and calm the markets. But Turkey’s prime minister, Recep Tayyip Erdogan, has been vocal in blaming the “interest-rate lobby” — a supposed conspiracy of foreign bankers, and some economists and journalists — for volatility in stock prices and a steep decline in the lira.
Turkey is far from the only country to blame foreigners for recent market turmoil. Venezuela’s president, Nicolás Maduro, recently complained of a “psychological war from abroad.” The governor of the Central Bank of Brazil, Alexandre Antônio Tombini, describes rising interest rates in rich countries as a “vacuum cleaner” that indiscriminately sucks capital out of emerging markets.
Emerging markets are justified to be concerned about the recent “sudden stop” in capital flows. In several economies — Argentina, Brazil, India, Indonesia, Russia, South Africa, Turkey — investors have been dumping stocks, currencies have depreciated and central bankers have been sounding the alarm. This will no doubt slow growth and create challenges at home.
But for all the colorful language, this obsession with monetary policy in the developed world (code for the United States) is misplaced. Factors other than the “tapering” (the slowdown in asset-buying) by the Fed have been more important in determining why countries like Turkey have been hit hard over the past few months: underlying structural problems, inadequate policy responses and trends in the global economy.
Read the full post at the New York Times.
Kristin Forbes is the Jerome and Dorothy Lemelson Professor of Management and a Professor of Global Economics and Management at the MIT Sloan School of Management.