the macroeconomic outlook and our assumptions which constitute the basis for our forecasts. first, i will summarize the recent inflation developments, and then compare the short term forecasts in the october inflation report with the actual inflation data regarding the fourth quarter of 2011. there were a few developments in the interreporting period which led inflation to deviate significantly from october forecasts. more - than - envisaged increases in unprocessed food prices were an important cause of this deviation. the ongoing depreciation in the turkish lira amid the deterioration in the risk appetite was another factor leading to a deviation in short - term forecasts ( chart 8 ). bis central bankers ’ speeches chart 8. october 2011 inflation forecasts and realizations * shaded region indicates the 70 percent confidence interval for the forecast. owing to the lagged effects of the exchange rate pass - through, core inflation indicators remained at elevated levels during the final quarter ( chart 9 ). this mainly stemmed from soaring core goods prices, while the moderate course of the underlying trend of services inflation indicated a benign outlook in terms of second round effects ( chart 10 ). chart 9. chart 10. core inflation indicators sca - h and sca - i prices of core goods and services ( seasonally adjusted, 3 - month average, annual percent change ) source : turkstat, cbrt. ( seasonally adjusted, 3 - month average, annual percent change ) source : turkstat, cbrt. we see that economic activity remained robust in the second half of 2011, despite a slight deceleration. gross domestic product ( gdp ) data pointed that domestic demand proved stronger in the third quarter of 2011 compared to the outlook presented in the october inflation report ( chart 11 ). thus, we revised our output gap forecasts for this period upwards. growth composition became much more balanced as we expected ( chart 12 ). despite the weak course of the global economy, exports continued to increase, whereas the demand for imported goods and services maintained a downward trend. consequently, the contribution of net external demand to growth has been positive for the first time after a protracted period. bis central bankers ’ speeches chart 11. chart 12. final domestic demand exports and imports of goods and services ( seasonally adjusted, 2008q1 = 100 ) ( seasonally adjusted, 1998 prices, billion tl ) source : turkstat, cbrt. * estimate. source : turkstat, cbrt. indicators regarding the last quarter of 2011

feedback loops between the global and the domestic economy, on the one hand, and between the financial and real sectors, on the other, have bis central bankers ’ speeches become more complex. in this context, it has become difficult to make reasonable impact assessment of macro - policies. moreover, the capability of standard models in the armoury of central banks in predicting growth and inflation is being questioned. primary assumptions of basic dsge models have come under attack both from policymakers and academia. there is, therefore, a need to revisit the modelling strategy in the light of the increased uncertainty, leverage and global linkages. it is important to harness appropriate statistical tools to capture the underlying dynamics of economic - financial framework. ladies and gentlemen, we are fortunate to have amidst us luminaries who are not only accomplished statisticians but some of them are at the helm of statistical administration. i am confident that the deliberations today will not only guide us in setting our statistical agenda in the reserve bank but also will go a long way in strengthening the indian statistical system, for which prof. mahalonobis worked tirelessly. i once again extend a hearty welcome to all our speakers and all our invitees, and look forward to the intellectual fare ahead. thank you. bis central bankers ’ speeches