Matt Nolan

Why are we using market mechanisms to fight climate change?

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Over at No Right Turn, Idiot/Savant appears to view the idea of using markets to fight climate change as a touch silly. This view is captured in the following quote (here):

What’s important is that we reduce emissions now, not whether our chosen policy is perfect and cleaves to neo-liberal orthodoxy.

Now I think this skepticism of using a market mechanism stems from the way he views the issue of climate change policy, take for example this quote: Read more

Matt Nolan

July 08 OCR reveiw preview

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So on Thursday the Reserve Bank decides whether to cut interest rates or not.  Last I heard the market is pricing in a 56% chance of a cut, while economists are picking a 45% chance (I’m surprised its not 50% 😛 ).

Now I think it is clear from the writing on this blog that I don’t think we should cut – but this preview isn’t about what I think SHOULD happen, but about what I think WILL happen.  Ultimately, I don’t think that they will cut on Thursday – however, the September meeting is looking good for a cut.

There are a number of reasons why I think they won’t cut:

  1. This is the start of an easing cycle.  It is nice to start an easing cycle with as much information as possible, July is a OCR review date, not an MPS date (when they release their forecasts) – as a result, if they cut in July they will be unable to “guide” the market as to the length of cuts they expect to make.  Cutting at the same time they release new forecasts will give them this “guiding” opportunity.
  2. Labour market data is out in August.  Given the fact that inflation expectations are rising and given the length of time that non-tradable inflation has been out of the bag, the Bank will probably want some confirmation that the labour market is easing, before easing themselves.
  3. They will not want to terribly surprise the market with rate cuts because of how close we are to the election – as they want to keep the image of political independence.  Given that July would surprise many market participants but September wouldn’t, it seems a fair bet that they will wait.
Matt Nolan

One year of TVHE

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Yeppie, we have been around for a year.  It all started with this post from Rauparaha (although to be fair there was an introduction post along the lines of this one which got mysteriously deleted).

Don’t have much to say other than that – hopefully the ramblings of a bunch of economists has been useful to someone.

Don’t forget – if you want an issue to get the “economics treatment”, just contact us (details in the about us section).

Also there is a housekeeping matter. If anyone changed their link to us from http://tvhe.wordpress.com to http://tvhe.co.nz then they should probably change it back – we aren’t working from http://tvhe.co.nz anymore 🙂

Matt Nolan

Progressive puts the squeeze on wholesalers: What does this mean for consumers?

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Normally, when we hear that a supermarket is putting the screws on its suppliers it is a good thing for consumers. When supermarkets get better prices for wholesale products, some of those savings will be passed on to consumers!

However, this case of squeezing the wholesaler does not appear as consumer friendly. Progressives are telling wholesalers that there product cannot be “promoted” by other store types at the same type that Progressive is promoting it. If they the wholesaler breaches this “no-clash” agreement, then they are liable for the cost associated with Progressives lowering the price to meet competitors.

Now how could this lead to lower competition? Read more

Matt Nolan

The paradox of petrol prices and inflation

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Explain this to me. According to some New Zealand retail banks:

If petrol prices increases, it will slow the economy, which will reduce inflationary pressures, and this will allow the Reserve Bank to cut interest rates.

If the petrol price falls, imported costs are lower, which will reduce inflationary pressures, and this will allow the Reserve Bank to cut interest rates.

Why are some people willing to take contradictory pieces of information as proof of their own fabricated story – this disappoints me. Come-on guys, lets be less reactive and lets use our awesome tools to give New Zealander’s better information!
Read more

Matt Nolan

Why has the price of oil fallen so sharply?

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Over the last three days the price of oil has fallen by nearly 10%. Given the sudden nature of this change it seems impractical to state that it is fundamental supply and demand factors driving the shift in prices.

Tyler Cowen at Marginal Revolution states two reasons why we might get such significant changes to the current price, even if contemporaneous supply and demand conditions have not changed – both explanations avoid implying that there has been a “speculative bubble” in oil (where a speculative bubble would occur when traders have been holding inventories, which they have not been – however this does not rule out a general bubble, where future price expectations are out of whack). These reasons are: Read more