Matt Nolan

Firms are greedy, but that isn’t the reason for inflation

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With prices rising an increasing number of people are looking for a scapegoat. Fairly “obviously” the blame should be on those who are increasing prices – namely firms. This outbreak of greed is then being used as an explanation for why firms are increasing prices, and the suggestion is that – instead of cutting government spending or increasing interest rates, the solution is to break up monopolies.

Now I have no problem with breaking up monopolies, and I’m a huge fan of clear competition policy. But this isn’t going to deal with the “inflation” problem we are talking about. Let’s chat about it.

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Matt Nolan

Why higher haircut prices might point to a strong economy (transcript and video)

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Seeing the price of haircuts rise, even relative to other things I might spend my money on, is the sort of thing to make an economist rail about anti-competitive behaviour. But is that really the case, or are higher haircut prices just a sign of a strengthening New Zealand economy? Gulnara and I have a think about this in a recent video.

For those who don’t like videos, there is a transcript below.

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Matt Nolan

GDP and alternative measures of national income (video + transcript)

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As part of our “Data and aggregates” playlist for macroeconomics we’ve added a video on GDP as income, and how to think about other national accounts measures in terms of income – after all, in some circumstances different measures can make more sense for a given question.

For those who don’t want to listen to a video, we’ve popped the script below.

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Matt Nolan

Price controls and inflation – is this time different?

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Note – this was going to be a video, but the day after writing it up I already saw better posts on it here and here and also here.  However, the text I wrote is kept below as it adds an occasional additional point – so feel free to read those posts and this one 🙂

The increase in prices in the US over the past year has been generating considerable angst – and comments that “price controls are needed to deal with inflation, due to corporate greed”.  This has led to lots of people saying things on Twitter, with individuals who different people may see as authorities taking very different views on the topic:

Mariana Mazzucato on Twitter: “Excellent by ⁦@IsabellaMWeber⁩ on the real cause of inflation and what to do about it. https://t.co/9epjBGOIpg” / Twitter

Aaron Hedlund on Twitter: “Did I miss the macroeconomics lectures where they teach that antitrust (https://t.co/EWD1CjAOpp) and price controls (https://t.co/oskR2ATzpu) are effective inflation-fighting strategies, or is economic illiteracy just running rampant again in some corners of the popular press?” / Twitter

How about we step back from the name calling to try to think about what these terms mean and what people are saying – as in the end it is likely people are talking a little bit past each other, and when that happens the rest of us can just get confused!

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Matt Nolan

ECON141: When cash rates go negative

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Last time I discussed how the cash rate influenced the interest rate.  But what happens when the cash rate goes negative?  This is the focus of today’s post.

After recent discussions about “negative interest rates” across Australasia I thought it would be useful to talk about how these rates appear mechanically at a high level (in terms of financial system operations).

In class (and Gulnara’s posts here) the motivation of why negative interest rates might be appropriate in a policy sense was raised.  Furthermore, she did a great job of noting that it is unlikely that negative rates will cause additional savings (as some have claimed) and so theoretically we can continue to think about our investment model with negative interest rates.

For this post we will assume that the central bank is trying to influence interest rates towards a level that will “close the output gap” or “push Y to its sustainable level” and achieve their inflation target, and it just happens that this interest rate is negative.

The wrinkle is that we achieve this negative interest rate through a settlement cash mechanism – so we need to ask, how do negative rates in settlement cash accounts translate into lending and actual interest rates?

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Matt Nolan

ECON141: The cash rate and interest rates

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Hi ECON141 students.  Unlike ECON130 there isn’t weekly material on this site, with lecture notes being provided instead.  However, I will add the occasional piece to help give what we are doing some context – so that it can be used to understand what is currently happening.

In that vein, today we are going to talk about how the central bank does influence the nominal interest rate in New Zealand (as compared to our still useful discussion of bond purchases in class).  By doing so we will also be able to ask about “negative interest rates” in a later post.

It should be noted that none of the content I cover here is assessed – you will be assessed on what we do in class and in the lecture notes and readings. Instead the purpose of this is to add a bit more detail about things for students who are interested.

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