Matt Nolan

Bleg: Grimes on bubbles

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Arthur Grimes recently gave an interview to Reuters, all I’ve seen so far is this write up via Raf on Twitter (cheers).  Now Grimes is an incredibly good New Zealand economist, to put things in perspective I would generally put more weight on a single line of his opinion of something than I would on my own intuition and analysis of issues – an given that as individuals we are strongly biased towards our own views that is pretty significant.

But anyone who reads TVHE knows what I’m like, I just really really want to know ‘why’ certain things are being said!  I emailed a few economists and some suggested I do a bleg asking, so why not!

In the Yahoo story there are a couple of segments I’m a touch confused on and I’d like it if someone could answer them for me 🙂 (Note:  Seamus from Offsetting offers some example answers at the bottom of this post)

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Infometrics

Series on tax: Part 8, inflation and tax

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Matt Nolan finished his series of posts on tax by discussing “inflation tax” on interest.co.nz (Infometrics version here).

The article covers a lot of ground, discussing monetary policy, “one-off” money financing, and seigniorage.  These areas are all related, but all involve special elements.

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jamesz

Central bankers are the modern storytellers

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Anyone who’s followed TVHE for a while will enjoy Gillian Tett’s discussion of the skills needed by central bankers:

Rather than operating the controls, moreover, central bankers also try to control economic outcomes by using words, not merely to influence price and interest rate expectations but to shape the mood. Thus the seemingly dry ritualistic texts that are issued each month – and supplemented by sober speeches – no longer merely describe policy; they are creating it too. Words are the weapon.
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[It] suggests that we all need to spend more time reflecting on the implicit social contract and cultural messages in central bank statements. …The next Fed chair needs to be a masterful storyteller and cultural analyst, who can read social sentiment, shape norms, (re) create trust and persuade us all.

Matt Nolan

RBNZ misstep on macroprudential policy

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I was hesitant to write this post, until I realised I was writing it on a personal blog that only a few lovely people read and no-one will be too concerned with what I say 🙂 .  Then I decided I may as well discuss how I actually feel about the speech from the RBNZ yesterday (where we discussed the summary here).

Not so long ago I wanted to note how to think about the causes of why we may move towards LVRs (maximum loan-to-value ratios on mortgage lending) in New Zealand.  I noted the following in terms of some quotes they had made:

Either these quotes miscommunicate the justification the Bank is using for such policies, I have completely misinterpreted the quotes, or they communicate it perfectly and I fundamentally disagree with the association they are using.

It is now clear that the RBNZ’s communication is crystal clear, and I fundamentally disagree with an element of their justification for LVRs.

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jamesz

Carney’s compromise

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The past week has seen a lot of excitement in the UK with the announcement of forward guidance by the Bank of England. In my day job I’ve been writing and talking (at 1:22) about it a lot lately, although I tend to leave the macro blogging to Matt. However, I’m going to make an exception for this announcement because there was just so much hype surrounding it.

If you want to know what others are thinking, Britmouse has a great round-up of the reaction so far and it is overwhelmingly negative. Views are split into two distinct camps: there are the people who think there is no output gap and rates should rise sooner, and there are the people who think it didn’t go nearly far enough.
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Matt Nolan

LVRs are coming: Let’s think about the causes underlying this

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I see the RBNZ has come out with the details of the LVR restrictions (loan-to-value limits on mortgages) they may well put in place soon.  That is cool.  I’m also a big fan of the “question and answer” style discussion of people’s submissions here.  Brennan McDonald summarises the details here.

However, in the release about this, there were several quotes about LVRs that I had to admit I had issues interpreting.  Either these quotes miscommunicate the justification the Bank is using for such policies, I have completely misinterpreted the quotes, or they communicate it perfectly and I fundamentally disagree with the association they are using.  These ones are not about housing affordability, they seem to strike at something more fundamental.

As a result, I thought I should have a chat about the quotes in question – and why I think our understanding of them, and the causal mechanisms involved, is central to thinking about policy.

The quotes are:

“LVR restrictions on residential mortgage lending can help to dampen excessive house price growth in periods when credit growth is boosting housing demand beyond housing supply,” Mr Spencer said.  “In so doing, they can reduce the risk of a rapid correction in house prices and the economic and financial instability that would ensue.

“In situations where house prices are overvalued, the further that house prices rise, the more likely it is that a disruptive downward correction will occur.  Such a correction would be very damaging if combined with a significant deterioration in economic or financial conditions.”

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