Matt Nolan

How to stay hawkish in New Zealand

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Hi everyone, sorry about the delay in writing this post I have had a flu and so have fallen behind in all my work including this.

The first order of business is to discuss Thursday’s employment data, something I said I would do on Thursday. However, instead of sticking to the popular indication of what it means I’m going to run with an alternative interpretation – the hawkish view of the employment data. Furthermore, I will use this to come up with a hawkish interpretation of the New Zealand economic situation.

Note that this interpretation is an exercise to make us think about exactly what is going on in the economy – I’m not saying that this is the most realistic interpretation, but it is useful to go through and discuss nonetheless.

Eric Crampton foreshadowed this potential interpretation in his insightful comment to this post. In the comment he discusses working for families and a reduction in labour supply in the economy, this is what is called an negative Aggregate Supply shock.

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Matt Nolan

Were the employment numbers bad?

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I’m pretty sure that this graph provides the answer:

I’ll talk about this a little more later tonight – all in all the size of the fall in employment will have surprised everyone.

Matt Nolan

RBNZ liquidity measures: What do they mean?

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This post is more of an open discussion post. I want to know what YOU think about the new Reserve Bank liquidity measures.

We know that BNZ, Goldman Sacs, the Press, and fellow bloggers such as the Hive and Mish believe that this (and yesterdays financial market review) illustrates a significant change in stance by the Bank. However the Bank itself believes that this illustrates no change in stance, but is simply mean’t to keep our monetary policy practice in-line with other countries – in the words of CPW, they wish to sit at the big boys table.

My knowledge of such things is decidedly limited – however, I’ll tell you what I think they mean, then you can correct me 😉

The main changes according to the Bank are:

  1. Extension of the range of securities eligible for acceptance in the Reserve Bank’s domestic liquidity operations to include: NZ-registered NZ dollar AAA rated securities, including Residential Mortgage-backed securities, and AA rated NZ government sector debt – including Government agencies, SOEs and Local Authorities.
  2. The discount margin applied in the Bank’s Overnight Reverse Repo Facility will be 50 basis points for all eligible securities.
  3. A graduated ‘haircut’ regime will replace the existing limit structure for all securities eligible for domestic liquidity operations.
  4. Extension of Overnight Reverse Repo Facility from 1 day to a maximum of 30 days.

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Matt Nolan

Congestion, carbon, and bus lanes

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Following yesterdays suggestion to lower the speed limit in order to reduce carbon emissions I’ve got to thinking about congestion and carbon.

Firstly, I’ll put down the obvious problems with this scheme. Lowering the speed limit will make congestion problems worse – as in the short run cars will be on the road for longer. In order to solve these congestion problems the government wants to introduce “congestion charging” in urban centres. This will, over time, lead to more urban sprawl, which will increase the distance people drive, canceling out some of the carbon savings.

However, I doubt the scheme is serious – the social cost associated is likely to exceed the paltry reduction in carbon emissions.

Anyway, this scheme is not even the focus of this post. Instead I wish to discuss congestion and why bus lanes could be a useful mechanism in the case of congestion (even though the guys from Top Gear don’t like them).

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Matt Nolan

Australian cash rate on hold, May 2008

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Yesterday the Australian’s left their official cash rate unchanged at 7.25%, 100 basis points lower than our cash rate. The rate has been on hold since March, but the overall feeling is that the bias is still towards further tightening – especially with the inflation rate at 4.2%.

However, the evolution of the statement between March, then April, and finally in May has been interesting. Beyond all the fluff involved in each statement one underlying factor has been key for the medium term outlook in the RBA’s mind – the strength of domestic demand. The language associated with with domestic demand has changed significantly over the months, in March: Read more

Matt Nolan

Why is the NZ government buying the rail network?

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So its official – our government has repurchased the rail network (blog commentary here, here, and here). Now such a purchase only makes sense if there are positive externalities from rail that the market was not accounting for (or if the horizon of the company was too short-term, but I don’t get that feeling). These externalities all stem from rail being a substitute to other forms of transport, namely road transport. This is covered in detail in this article by Andrew Gawith.

A list of the potential positive impacts are:

  1. Rail has lower carbon emissions,
  2. Industry has already sunk infrastructure around rail lines (namely dairy) so it allows them to increase capacity,
  3. Rail is less congested than the roads,
  4. Network effects.

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