Matt Nolan

Surprise fall in Aussie GDP: What happened

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One piece of information managed to shake me out of my flu induced daze for long enough to write a post – Australian GDP had a surprising fall over the December quarter, falling 0.5% (seasonally adjusted) on September.

Appears that inventory accumulation was knocked down sharply – that is very interesting.  Usually during a recession inventories are a positive contributor – as spending slows more quickly than production.  This implies to me that the fall in GDP may not be sustainable – as inventory accumulation will need to build back up.

As a result, even with a 0.5% fall this quarter, I’m not sure if we are going to see an Aussie recession (two quarters of negative growth) quite yet …

Of course – the steep fall in their terms of trade is concerning – but that is a story for when I’m actually able to think 🙂

Matt Nolan

Debating the paradox of thrift

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I’m sick today – and since economics and sickness don’t really roll together I can’t say much.

However, it looks like Econlog has been busy with authors discussing the paradox of thrift.

Robert Murphy is against it, Bryan Caplan is against a policy solution, and Arnold Kling disagrees with both of them.

How I feel about this has been described previously here, and summed up here.  Feel free to say what you think about the issue here 🙂

jamesz

Do we get what we pay for in healthcare?

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I said earlier that we might not always want to trust the people with the best track record when we go off the beaten path. Sometimes the tools that work in one environment aren’t the best to use when the environment changes and what we really need are experts in developing tools.

A related post on OB points to another reason why trusting track records isn’t always best.

Call it the best-kept secret in Massachusetts medicine: Health and life insurance companies pay a handful of hospitals far more for the same work even when there is no evidence that the higher-priced care produces healthier patients.

We might naively use this as evidence that less prestigious hospitals actually offer better care. However, another possible interpretation is that the toughest cases go to the most prestigious hospitals where there are more hospital beds available and, despite the higher standard of care, they end up with a higher mortality rate. Read more

Matt Nolan

February RBA: Rates unchanged

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The Reserve Bank of Australia has left their rates unchanged at 3.25% (statement here). We suggested that this was a possibility earlier in the day – and it is the closest thing to a correct rate call that I’ve have made for the last 18 months 😛

Relatively robust domestic demand, combined with commodity prices that just won’t fall sharply, has convinced the RBA that there is now enough stimulus.

They haven’t given up on future rate cuts. “The Board will consider the position again at its next meeting” indicates to me that there is room for cuts if Australian output starts to decline or if commodity prices from their end are really starting to sag.

This will definitely dent expected rate cuts in New Zealand. Before this I would have bagged a 75 cut – now a 50 cut is looking a lot more likely (than it was). I’ll keep an eye on iPredicit to see what is going to happen.

jamesz

Should we trust the forecasters?

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I’ve been flicking back over some posts by Robin Hanson at Overcoming Bias and came across this one about judging the reliability of macroeconomists’ advice:

It turns out that many macro economists frequently forecast future macro events. Furthermore, many places keep standardized track records of such forecasts, records that can be compared for accuracy; we can compare the accuracy of such folks!
. . .
Alas, it turns out that there is almost no overlap between the macro-economists who are considered the most prestigious and those who even publish forecasts.

I can understand wanting to rely on the economist with the best track record for ordinary forecasting, but is there a difference in the current climate? Read more

Matt Nolan

February Australian commodity prices

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In all this negative news there is one plus that keeps on going:  Australian commodity prices:

aucommodSource(RBA)

In Australian dollar terms export prices are virtually unchanged.  I prefer looking at world prices though, as it gives you some idea of relative prices without having to look at the terms of trade (a sketchy idea).  In this sense prices are down 12% on their September 2008 peak.  However, to put this in perspective, this is 20% higher than February 2008!

I am very surprised with how strongly Australian commodity prices have held up.  Late last year people told me it was because the RBA measure was a “lagging indicator.  However, its February now and the index still looks very strong – why?  With this sort of information I can understand why the RBA might not cut rates today.