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> In many cases, the greatly increased cost of imported inputs meets or exceeds the export gains. Can you explain how it can exceed the export gain? Say ther

> In many cases, the greatly increased cost of imported inputs meets or exceeds the export gains. Can you explain how it can exceed the export gain? Say there is some Turkish export product, to keep it simple let's say it's a car which needs some metal as an input, that has to be imported. If the Lira goes down, this means the metal becomes more expensive in terms of Lira's. So this has to be accounted for in the price of the exported cars. However, that accounted price increase is the same as the rise in import price. What is left is the added value within Turkey, which has become cheaper because of the Lira drop. So even though export price drops are slower than the drop of the Lira, they still drop.

scott_w 3y ago
Not necessarily. In fact, the importer will probably have to buy raw materials in USD/EUR then sell back in USD/EUR, they're probably not getting any of that competitiveness at all. Add in the inefficiency of having to translate some of that into an unstable lira, I don't see how they're going to maintain a more competitive price on the lira.
WOTERMEON 3y ago
Import prices in Türkiye are expressed in Eur almost always
stefan_ 3y ago
Imports aren't priced perfectly. If the worth of your currency is wildly variable you end up paying a lot of money on top to hedge the currency risk.
nirimda 3y ago
> What is left is the added value within Turkey, which has become cheaper because of the Lira drop. Does this follow necessarily? If wage-earners have a fair degree of bargaining power or if wages are indexed, then the decrease in value of the lira will result in an increase in nominal wages. And in a condition of steady but substantial inflation, currency can be reduced to a medium of exchange rather than serving as a store of value - or in the case of contract negotiations, as an indication of the future value. Chances are, wage earners and others contracting for future delivery will just naturally take inflation into account when arranging the contract. Their payments might be in lira, but they way they set their prices is derived from the lira/euro exchange. This is all basically what anti-inflation hawks mean when they say "we have to prevent inflation expectations hardening" etc. They want people to believe that a dollar today will have about the same value as a dollar next year. So if you have a generally stable currency that depreciates and finds a new level, it might make the economy more competitive. If you have a currency that regularly varies, sometimes up, sometimes down, a depreciation might not mean much to its competitiveness (because an investor expects that the depreciation today has no relation to its value next year). And if you have a currency that is steadily declining, well, everyone has already accounted for that possibility so relative prices quickly adjust to return to the previous levels.

scott_w 3y ago

Not necessarily. In fact, the importer will probably have to buy raw materials in USD/EUR then sell back in USD/EUR, they're probably not getting any of that competitiveness at all. Add in the inefficiency of having to translate some of that into an unstable lira, I don't see how they're going to maintain a more competitive price on the lira.

WOTERMEON 3y ago

Import prices in Türkiye are expressed in Eur almost always

stefan_ 3y ago

Imports aren't priced perfectly. If the worth of your currency is wildly variable you end up paying a lot of money on top to hedge the currency risk.

nirimda 3y ago

> What is left is the added value within Turkey, which has become cheaper because of the Lira drop. Does this follow necessarily? If wage-earners have a fair degree of bargaining power or if wages are indexed, then the decrease in value of the lira will result in an increase in nominal wages. And in a condition of steady but substantial inflation, currency can be reduced to a medium of exchange rather than serving as a store of value - or in the case of contract negotiations, as an indication of the future value. Chances are, wage earners and others contracting for future delivery will just naturally take inflation into account when arranging the contract. Their payments might be in lira, but they way they set their prices is derived from the lira/euro exchange. This is all basically what anti-inflation hawks mean when they say "we have to prevent inflation expectations hardening" etc. They want people to believe that a dollar today will have about the same value as a dollar next year. So if you have a generally stable currency that depreciates and finds a new level, it might make the economy more competitive. If you have a currency that regularly varies, sometimes up, sometimes down, a depreciation might not mean much to its competitiveness (because an investor expects that the depreciation today has no relation to its value next year). And if you have a currency that is steadily declining, well, everyone has already accounted for that possibility so relative prices quickly adjust to return to the previous levels.