Matt Nolan

July Mortgage rates: A question for our readers

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Hi all,

Does anyone know why ASB cut mortgage rates following the OCR decision? Bank credit funding costs have been going through the roof – which is why the RBNZ felt that it needed to cut the OCR just to prevent large increases in mortgage rates!

I’ve heard that Kiwibank can cut rates because of the large amount of domestic funding it has under its thumb. I was wondering if there is there something specific to ASB that has allowed them to cut rates? If anyone has any idea I would love to hear from them in the comments.

Update: Westpac as well – still only the two year rate though, so it could still be viewed as “cheap” advertising.

Update 2: According to Good Returns this was the interest rate action:

Following the Reserve Bank cutting the official cash rate by 25 basis points last Thursday, ASB, TSB, Bank Direct, Sovereign and Westpac all reduced their two-year rates.
ANZ and National Bank broke ranks with their competitors and announced they would cut one year fixed rates as well as two year rates. Their two year rates came down 25 basis points to 8.95% and their one-year rates are down 20 points to 9.20%.

Hmmmm.

Matt Nolan

Price indicies: A discussion

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Note: Other posts in this discussion are available under the tag “inflation debate“.

With the trade-off between inflation and other things behind us, and a justification for inflation targeting, we have a good base to discuss current activity and issues. The aim is to now discuss other methods of fighting inflation – however, before discussing this I think it is important to discuss another technical issue: How do we measure inflation?

This is both an incredibly important issue, and a highly contentious one. While I was going to write a long post on this, Dr Chinn at Econobrowser beat me to it (and also did an infinitely better job than I could have 😉 ). Dr Chinn discusses how we use the CPI to measure inflation, and the limitations of this measure (especially in terms of individuals expectations of what inflation is!). As a result, he covered all my main points 🙂

However, I will write some additional stuff anyway 😉

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Matt Nolan

July 2008 official cash rate cut: The long and winding road

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So the Reserve Bank has cut interest rates.

If you normally read this blog you will know that this disappoints me – and I am grateful that both of you understand the pain I’m going through 😉

There has been a lot of commentary on the Reserve Bank’s decision, which I will link to before moving into my own discussion (TUMEKE!) (The Inquirying Mind *) (The Hive) (Not PC) (The Standard) (Kiwiblog *) (No Minister *) (Colin Espiner) (Show me the money) (Jafapete). I am happy to see so many New Zealand blogs willing to discuss the issue – even though my views may be quite different 🙂

Now let me tell you what I’m thinking:

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Matt Nolan

July 08 OCR decision: Rates cut to 8.0%

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So the Reserve Bank cut interest rates to 8.0%.

The only new information that has come out since June is a higher inflation outcome as a result of larger than expected increases in petrol and food prices. Furthermore recent increases in funding costs have helped to convince the Bank to cut.

Even ignoring inflation, it appears that the Reserve Bank values the livelihood of those who have mortgages above people who are struggling to pay their food and fuel bills (which will go up, as a lower exchange rate will increase the New Zealand price of both).

Good Bloomberg piece here.

More discussion to come later (the additional discussion has now appeared).

Matt Nolan

Womanomics and sunk costs

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Cactus Kate states that men should pay the bill when taking a woman out – because of the substantial expenses associated with being a woman.

As an economist, I’m not so sure if this does it – after all, aren’t these all sunk costs, which implies that they shouldn’t have any impact on the final negotiation at the end of the night that determines who should pay the bill for the date.

As a result, the demands that Ms Kate place on men to pay the entire bill, based on these costs, may seem somewhat “irrational” (I hate that word).
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Matt Nolan

The lemon hypothesis vs evidence

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Back in 1970 George Akerlof wrote “The Market for Lemons”, where he described a game where if, buyers have less information than sellers, it is possible that mutually beneficial trade may not occur. (Wikipedia)

Now I’ve noticed a bunch of my favourite economics blogs discussing this paper by Arif Sultan, on empirical evidence and the “lemons problem”. (Blogs are Anti-Dismal, Division of Labour, and Marginal Revolution). The paper appears to say that, empirically, the quality of new and used cars is the same – something that would not occur in the case of a “market failure” based on asymmetric information.

Overall I enjoyed the posts offered by Anti-Dismal (descriptive) and the Division of Labour (stating it was an interesting result), but I think Marginal Revolution takes more out of the paper than it actually offers. Read more