I wish more laypeople understood the difference between real and nominal economic quantities. Until real rates go positive, it's profitable to borrow lots of money and use it to hoard goods, which accelerates inflation.
Turkey however doesn't exactly have the stability, skills, or logistics necessary right now for big names to relocate. So they are likely suffering for not much gain.
Hence why I don't think their plan is going to work.
Of course it does. To argue that making the real rate less negative doesn’t affect inflation is to imply Turkey could cut its rates to -100% nominal and not suffer any consequences.
They have a fairly competitive automotive, machinery, power systems and renewables, and chemical industry, and can probably expand it further.
If they return to the same economic formula Dervis and Babacan pushed, it can get back on track.
That said, a lot of the miraculous growth from 2005-13 was because of Central Anatolia catching up. The only region that hasn't caught up yet is Eastern Anatolia, though it's getting there unless the YPG/PKK screw everything up again.
All the manufacturers have raised their prices significantly in TRY (Turkish Lira) terms- I suspect to the point that their prices are higher than usual even in USD/EUR terms.
Yes in power systems, automotive, tooling and machinery, and chemicals.
Turkish OEMs are connected with the larger CEE automotive industry, and they are a significant manufacturing of power systems components for Europe and ME. The chemical engineering industry is also fairly competitive (plastics, polymers, etc).
It's the same story for Mexico and Thailand.
So this is a complicated calculation about how bankers expect people to react to the change in the next few days.
Wont the real interest be: 1.45/1.65 => -12%
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e^(realt) = e^(nominalt) / e^(inflationt). Left side is your compounded real gains, first factor is on the right is your compounded nominal gains, and the divisor is the cumulative price rise to go from nominal to real terms.
e^(real t) = e^(nominalt - inflationt), by quotient rule for exponents.
e^(real * t) = e^(t * (nominal - inflation)), factoring out t.
real * t = t * (nominal - inflation), taking natural log of both sides
real = nominal - inflation, dividing by t
\*example
e^(real x t) = e^(nominal x t) - e^(inflation x t)
?
Like, you have 1$ in the bank that can buy 1 foo widget.
After a year the foo widget is 1.65$ and you have 1.45$, missing 12% of the sum you need.
I.e the same thing as having no inflation and a 12% tax.
Your definition seem to break down when "nominal - inflation" is bigger than -100%. Or what would -110% real interest mean?
If we assume there is no inflation, then after one year the foo widget is still $1 [1] and you have 80¢ [2] – a 20% tax.
[1] $1.65 - $0.65 = $1.00
[2] $1.45 - $0.65 = $0.80
In other words, workers at minimum wage are making more in dollar terms today than they made in dollar terms in previous years.