5 ms·

So...real interest rates are -20%. That's not going to tame inflation. I wish more laypeople understood the difference between real and nominal economic quant

So...real interest rates are -20%. That's not going to tame inflation. 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.

KolmogorovComp 3y ago
That’s assuming salaries follow inflation, a big hypothesis.
- unsupp0rted 3y ago
  As of the start of this year, minimum wage in Turkey is ahead of inflation. In other words, workers at minimum wage are making more in dollar terms today than they made in dollar terms in previous years.
  - The_Colonel 3y ago
    That doesn't say much without knowing how many people earn it. In my country, only about 4% of employees get minimal wage (because it's pretty low). What's the situation for the median worker?
    - unsupp0rted 3y ago
      A LOT of people in Turkey earn minimum wage. 50% ~ 75% of all workers.
      - aranelsurion 3y ago
        And also a substantial amount of people who earn less than that under various legal and illegal schemes.
rightbyte 3y ago
The numbers are too big for using that approximation. Wont the real interest be: 1.45/1.65 => -12% ?
- nostrademons 3y ago
  Pretty sure it's not an approximation, at least for interest rates compounded continuously. The real interest rate is simply the nominal interest rate minus inflation. The algebra is 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
  - bitshiftfaced 3y ago
    Asterisks code for italics in markdown language.[0] You can avoid this by escaping them with the backslash. \*example 0. https://news.ycombinator.com/formatdoc https://news.ycombinator.com/formatdoc
  - yorwba 3y ago
    Interest rate and inflation are usually expressed as e^(exponent * one year) - 1, so to get from 45% to the exponent you need to add one and take the logarithm, giving 0.37
  - rightbyte 3y ago
    Hmm ... my heads hurt doing math ... so not: 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?
    - deleted 3y ago
Workaccount2 3y ago
Turkey is trying to modulate inflation, not tame it. The goal is to attract foreign manufacturers to come an set up shop in Turkey. It's very favorable to be using $USD/$EUR to buy labor/material in Turkey right now. 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.
- cherryteastain 3y ago
  Which is sad because that stability was there for a brief window between ~2005 and 2013.
  - alephnerd 3y ago
    Yep. It's a stunning fall for the Anatolian Tiger, but imo the potential is still there, and China+1 will help. 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.
- Alpha3031 3y ago
  It's possible to manage a dirty float without setting fire to the domestic economy, you know... In fact, investors tend to be hesitant to invest in economies that are on fire even with favourable exchange rates.
  - Workaccount2 3y ago
    > In fact, investors tend to be hesitant to invest in economies that are on fire even with favourable exchange rates. Hence why I don't think their plan is going to work.
- nostrademons 3y ago
Alpha3031 3y ago
A leftward shift of LM is still a leftward shift of LM.
cherryteastain 3y ago
Real rates are way below -20% and real inflation is way above 65%. An independent research institute composed of some of the top economists in Turkey, ENAG[1], puts it at over 120% [1] https://enagrup.org/?hl=en https://enagrup.org/?hl=en
marcosdumay 3y ago
Well, what actually matters is the future inflation, not the past one. So this is a complicated calculation about how bankers expect people to react to the change in the next few days.
deleted 3y ago
[deleted]
bwanab 3y ago
Unfortunately, it seems their president wasn't aware of the connection either: https://www.reuters.com/world/middle-east/erdogan-says-interest-rates-will-be-lowered-inflation-will-fall-too-2022-01-29/ https://www.reuters.com/world/middle-east/erdogan-says-inter....
- tim333 3y ago
  I think he's aware of the idea but argues aggressively against it. Apparently God will sort it all out.
anonporridge 3y ago
Depending on your politics, spreading this understanding might have negative implications for the upcoming US election. https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N

KolmogorovComp 3y ago

That’s assuming salaries follow inflation, a big hypothesis.

unsupp0rted 3y ago
As of the start of this year, minimum wage in Turkey is ahead of inflation. In other words, workers at minimum wage are making more in dollar terms today than they made in dollar terms in previous years.
- The_Colonel 3y ago
  That doesn't say much without knowing how many people earn it. In my country, only about 4% of employees get minimal wage (because it's pretty low). What's the situation for the median worker?
  - unsupp0rted 3y ago
    A LOT of people in Turkey earn minimum wage. 50% ~ 75% of all workers.
    - aranelsurion 3y ago
      And also a substantial amount of people who earn less than that under various legal and illegal schemes.

rightbyte 3y ago

The numbers are too big for using that approximation. Wont the real interest be: 1.45/1.65 => -12% ?

nostrademons 3y ago
Pretty sure it's not an approximation, at least for interest rates compounded continuously. The real interest rate is simply the nominal interest rate minus inflation. The algebra is 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
- bitshiftfaced 3y ago
  Asterisks code for italics in markdown language.[0] You can avoid this by escaping them with the backslash. \*example 0. https://news.ycombinator.com/formatdoc https://news.ycombinator.com/formatdoc
- yorwba 3y ago
  Interest rate and inflation are usually expressed as e^(exponent * one year) - 1, so to get from 45% to the exponent you need to add one and take the logarithm, giving 0.37
- rightbyte 3y ago
  Hmm ... my heads hurt doing math ... so not: 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?
  - deleted 3y ago

Workaccount2 3y ago

Turkey is trying to modulate inflation, not tame it. The goal is to attract foreign manufacturers to come an set up shop in Turkey. It's very favorable to be using $USD/$EUR to buy labor/material in Turkey right now. 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.

cherryteastain 3y ago
Which is sad because that stability was there for a brief window between ~2005 and 2013.
- alephnerd 3y ago
  Yep. It's a stunning fall for the Anatolian Tiger, but imo the potential is still there, and China+1 will help. 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.
Alpha3031 3y ago
It's possible to manage a dirty float without setting fire to the domestic economy, you know... In fact, investors tend to be hesitant to invest in economies that are on fire even with favourable exchange rates.
- Workaccount2 3y ago
  > In fact, investors tend to be hesitant to invest in economies that are on fire even with favourable exchange rates. Hence why I don't think their plan is going to work.
nostrademons 3y ago

Alpha3031 3y ago

A leftward shift of LM is still a leftward shift of LM.

cherryteastain 3y ago

Real rates are way below -20% and real inflation is way above 65%. An independent research institute composed of some of the top economists in Turkey, ENAG[1], puts it at over 120% [1] https://enagrup.org/?hl=en https://enagrup.org/?hl=en

marcosdumay 3y ago

Well, what actually matters is the future inflation, not the past one. So this is a complicated calculation about how bankers expect people to react to the change in the next few days.

deleted 3y ago

[deleted]

bwanab 3y ago

Unfortunately, it seems their president wasn't aware of the connection either: https://www.reuters.com/world/middle-east/erdogan-says-interest-rates-will-be-lowered-inflation-will-fall-too-2022-01-29/ https://www.reuters.com/world/middle-east/erdogan-says-inter....

tim333 3y ago
I think he's aware of the idea but argues aggressively against it. Apparently God will sort it all out.

anonporridge 3y ago

Depending on your politics, spreading this understanding might have negative implications for the upcoming US election. https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N