Matt Nolan

And the Reserve Bank cuts …

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So, the Reserve Bank has just announced that it has cut by … I don’t know, its 7.30am for me so the Bank is yet to announce it. We have discussed this wildly though (here, here, and here) – so it will be good to see what has happened.

Feel free to do your own announcement in the comments (RBNZ site is here), and I will get to putting an update on this by about 9.20am.

Update: They cut by 150bp – I was wrong and everyone else was right 😉 . DG was right when he said Monday’s numbers were very important – the Bank was looking for a big cut but these numbers definitely set the tone for cuts to come. I am nervous about the size of the contraction in consumption that is being discussed – low petrol prices will get some people spending. But as long as no-one will lend to people I suppose it doesn’t matter 😉

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Matt Nolan

RBA cuts 100

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The Reserve Bank of Australia cut 100 basis points last night taking the cash rate to 4.25% – well into easing territory.

A feeling that global commodity prices were in for a sustained lower period was a driving force behind this stimulus.  Surprisingly the Reserve Bank of Australia did not mention to enormous decline in fuel prices – however, there suggestion that the terms of trade would fall markedly implicitly suggests that the decline in petrol prices will be dominated by other factors.

What does this mean for New Zealand – a rule of thumb stemming from cuts so far (Aussie cut + 25) would suggest 125bp.  100 is still conceivable, as is 150.  My pick of 75 now seems incredibly unlikely.  Note, further discussion of the decision occurs in the comments of this post 🙂

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Matt Nolan

No need for fiscal stimulus – monetary policy is coming

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Or so says John Key. Very interesting.

Ok, as Prime Minister, John Key needs to stop talking about monetary policy!!! Luckily Kiwiblog has already covered this – so you won’t get another rant from me 😉

I am not sure whether he is speculating, or whether he’s been briefed and then wandered off and spilled the beans. All I know is that he pushed up the price of the “over 100” contract on iPredict.

All I know is that my pick of 75 is looking increasingly unlikely – Australia’s decision tonight will make everything a lot clearer 😉 . However, I am glad to see that he agrees with the idea that we don’t need to be introducing a fiscal stimulus.

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Matt Nolan

Tax cuts, the minimum wage, and incidence

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The Standard has been stating that tax cuts should be “fairer”. Now in principle I have no problem with things being “fairer” – however, defining what is fair very is subjective, and what the Standard sees as fair and what I see as fair might be different.

Still, both the Standard and No Right Turn go on to quantify what they feel is an injustice – the fact that a greater proportion of the tax cut will go to the wealthy. However, for what they are saying to be true, the wage everyone is paid following a tax cut must not change (or must change by the same lump sum) regardless of their current income – yet this is not the case.

Many moons ago we discussed tax incidence – I think it is time to run with this again, taking for granted some of the assumptions about the labour market that the Standard has provided us with over time.

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goonix

Buy low, sell high

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With the official cash rate set to fall even further later this week, shares become relatively appealing when compared with other financial instruments, such as bonds and term deposits.

The old adage of ‘buy low, sell high’ seems fitting, given the battering shares the world over have taken in the past while. The NZX and Dow Jones industrial averages, for example, are both down around a quarter from their respective values six months ago.

But just when is the market ‘low’?

I don’t know! If I did, I’m sure I’d be a lot wealthier than I am. However, I thought it would be useful to write a blog entry to stimulate discussion and debate on what TVHE readers are picking for the sharemarket:

  1. Is now a good time to buy?
  2. What industries/companies would you consider investing it?
  3. What factors are influencing your decisions to invest, or not?

I look forward to hearing our readers’ views on the current state of the sharemarket.

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Matt Nolan

Real income, poverty, and a tiered CPI

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According to a recent book by Christian Broda and David E. Weinstein (Prices, Poverty, and Inequality: Why Americans are Better Off Than You Think) (ht Marginal Revolution) growth in income inequality was less pronounced in the US because of changes to the quality and cost of goods that “poor” people purchased.

This indicates to me that a tiered consumer price index could be a useful thing.  Currently the household economic survey (HES) provides an annual tiered income measure (where we see the average income of different income deciles).  However, this nominal measure is not particularly useful if the change in prices experienced by different groups are very diverse.

As a result, a similarly tiered CPI measure (so a CPI for each income decile) would actually give us a much better way to figure out change in “real income” and thereby a fairer measure of the distribution of real income – which is something we care about.

Surely the HES has a measure of purchases by different income groups.  As the CPI is broken down into different products it should be possible to take these weights and come up with a loose set of indicies that represent the price inflation faced by different income declines shouldn’t it?