Combining these two facts, central bankers in emerging economies face the challenge of modeling the economy properly and react accordingly. In addition, I believe it is not an exaggeration to say that subsequent crises and reform processes have largely defined the economic landscape of emerging market economies in the last twenty years. Thus, uncertainty, which naturally exists in every economy, constitutes a real challenge for central bankers in many emerging economies because of their volatile and unpredictable structure. Dear guests, What we have been experiencing in the Turkish economy in the last five years can be classified as one of the clear examples of the impact of structural changes on an economy. First of all, after a thirty-year period of high and chronic inflation, inflation declined from 68.5 percent in 2001 to 10.26 percent in August 2006. This decline in inflation also made it possible to perform the currency reform at the beginning of 2005 and we dropped six zeros from our currency. Second, we experienced high growth rates while inflation was falling. I can say that the Turkish economy has left behind the boom-bust cycle of growth and has been growing for the last eighteen quarters consecutively. Additionally, the sources of growth have changed, as well. Third, the declining trend of the ratio of public debt to national income has contributed both to the fight against inflation and the relative stability in financial markets.
In fact, what is more important than the figures is that central banks were first established mainly as the lender of last resort and banknote issuer, rather than as an institutional body of monetary policy. Today, there are 160 central banks operating around the world. Some of them are also responsible for supervision and regulation of financial system and have been publishing financial stability reports, and some of them are targeting a certain measure of general price level and have been issuing inflation reports. Thus, in a broader perspective, the evolution of central banking has followed a course from maintaining liquidity when it is necessary and issuing banknotes, towards keeping inflation low and stable, and preserving stability in financial markets. In some sense, this evolution process can be characterized as the converging of the objective functions of central banks all around the world. To be more precise, it is generally accepted that in the case of both industrialized nations and emerging economies, the main contribution that a central bank can make to economic welfare in the long run is achieving and maintaining price stability. Moreover, maintaining price stability is not merely an issue of maximization of economic welfare. It gives people the confidence that money will retain its value over time, ensures that price signals function as a guide for markets to function efficiently and establishes trust in the interaction among economic agents, in property rights, in society and in the future in general 1 .