Sabri wrote:
Whether the market is right or wrong is undefined in this case, since I am as the Central Bank also in the market. I, as the Central Bank, have my own insatiable utility function and they, as the rest of the market, their own. What is right for my utility maximization problem may be wrong for other guys with other utility functions in the market and vice versa.
Say that due to some circumstances other market players decide to dump or short TT's Eurobonds. Are you saying that, in those circumstances, you (the central bank) will be less risk averse (and will deploy resources to back that up) than the average player, buy those Eurobonds, and slow -- even stop -- the bleeding? If so, aren't you assuming too shallow a market? Aren't these assets are near substitutes of one another and aren't the markets the largest ever? It's not clear to me that a central bank in a country like Turkey, Brazil, or Mexico can afford to be less risk averse than, say, a George Soros. Am I understanding your point?
