RBNZ December 2011 Bulletin

It’s good – and its pretty easy reading.  You guys should give it a go.

My main focus was on the starting paper on consumption, which just gives a basic overview of how to view total consumption in New Zealand, and then uses this framework to understand some stylized facts regarding NZ in the past decade.  I also agree heartily with the conclusion:

However as consumption as a share of income did nothing very unusual during an unprecedented housing boom, it is not obvious that there is a large role for house prices to play in explaining consumption behaviour during the period.

I like it because it supports my priors of course 😉 .  Fundamentally, we can’t rely on some “wealth effect” that has driven us to buy “flat screen tv’s” to explain what has happened in NZ over the last decade – a point that was, at one point, being pushed too hard IMO.  Debt has been built up, house sizes have increased, building costs/land prices have risen, non-house consumption goods have been cheap, financial markets have changed – there are a range of factors here that we need to tie together to make a convincing, and sensible, story of what has happened.  And once we have a clear and consistent answer, only then can we try to understand whether it is/was “good” or “bad” and whether there is anything that should be done to improve outcomes.