Matt Nolan

RBNZ MPS Sep 09

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So the Reserve Bank left the cash rate unchanged at 2.5%.

Three quick points:

  1. Their forecasts are stronger than in June,
  2. They talked alot about structural imbalances (something I heard about a couple of months ago),
  3. They actually framed their decision in terms of inflation again, like the Aussies have been.

“Annual CPI inflation is currently well within the target band and is expected to track comfortably within the band over the medium term”

Thank you 🙂

All in all, it was a good statement from the Bank.  I’m just not sure if I really believe them when they say they won’t increase the OCR until late-2010 😉

Matt Nolan

Space mirrors, carbon permits, and global warming

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Could it be.  Could technology save us from global warming through “space mirrors” and ” carbon absorbing rocks” (source).

Maybe.

In that case, should we not worry about pricing carbon.

No.

Why?  Well, if it turns out that countries can cheaply get below the appropriate carbon producing targets with these technologies, then the price of carbon permits will collapse.  The price will adjust to capture this technological change.

As a result, we should keep running with a scheme to limit the quantity of carbon emissions (in order to avoid or limit the damage of a global warming event) and we should realise that technological progress will get captured in any price adjustment – in fact the very existence of such prices will increase the incentive for people to develop these technologies.

Matt Nolan

Why all the talk about a new currency?

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I’m lost here.  According to this article, and a bunch of others like it, we need a new international currency to protect little countries (like NZ) and relatively undeveloped countries.

There are two ways of taking this:

  1. Using the US$ as a sole reserve currency is too risky, we need a basket of currencies.
  2. We need to fix some exchange rates.

The first justification is ridiculuos, as nations choose to use the US$ as a reserve currency – it isn’t forced upon them.  If they want to instead hold reserves in a “basket of currencies” then they can.

The second justification is also something I disagree with.  The exchange rate is a price, and a return to Breton woods style fixing of exchange rates merely implies that we aren’t letting the market express the appropriate price between countries.  This would not matter if prices INSIDE a country were perfectly flexible – but since they aren’t fixed exchange rates lead to a misallocation of resources.

As a result, what is the point?

goonix

Chelsea’s transfer ban and the potential for player hold-up

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FIFA have punished Chelsea by banning them from the signing new players in the next two transfer windows after they were found guilty of inducing Gael Kakuta, a France youth international, to breach his contract with Lens in 2007. The decision means that Chelsea will not be able to add to their squad until January 2011.

Fifa’s regulations on the status and transfer of players state in Article 17, paragraph 4: “It shall be presumed, unless established to the contrary, that any club signing a professional who has terminated his contract without just cause has induced that professional to commit a breach. The club shall be banned from registering any new players, either nationally or internationally, for two registration periods.”

How will this ban affect the incentives of current players registered with Chelsea? The club, being unable to sign new players, will be desperate to hold on to what they already have. The current players, knowing that the club cannot look elsewhere to replace them, will be in the driving seat when it comes to contract negotiation as they can effectively ‘hold-up’ the club to meet their demands.

The precedent for such bans being enforced is not strong, however, with Roma having their ban reduced to one summer transfer window (arguably the less important transfer window in a season) and Swiss club Sion currently appealing their two window ban.

Will Taylor

Ever organised a dinner party?? Then you are an expert in running a two-sided market!

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In my wanderings I found this neat little example using dinner parties to explain two sided markets (source):

The task facing a certain kind of entrepreneur these days is no more unfamiliar than the engineering of a successful dinner party.  The French ambassador would never so much as respond to an invitation — unless you intimated that Rupert Murdoch, say, would be there, in which case he would accept. Murdoch, if he thought that the Attorney General would attend, would show up, too. And if you led the AG to think his dinner partner would be his favorite movie star, who, you let slip, so badly wanted to meet him (while telling her the same thing) …. Well, pretty soon you’d have a famous dinner party. After three or four such successes, your reputation as a host would make your job much easier, with chefs, provisioners, decorators, and florists anxious to work for you.

Interesting analogy, I imagine anyone who has ever oranised a party will  sympathise with this description:)

Matt Nolan

Why?

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Defective Equilibrium mentions that John Minto’s idea of a salary cap is madness.  He is correct.

My question is why?  Why have a salary cap?  Why would society need to stop people voluntarily trading?

If someone pays someone else an “eye popping salary” this is voluntary trade, why do we feel that we have to jump in and regulate a “maximium value” for this trade?  There are two reasons for asking this question:

  1. It makes us realise that capping salaries just because they seem too big isn’t a “fair” thing to do.
  2. It might make us see where an actual market failure exists – which is turn might illustrate an issue we should look at regulating.

So, why?