Matt Nolan

Cartoon: Economics

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Ht Big Picture

To be fair, economics is a wide ranging social science and we can’t criticise some parts of the discipline on the basis of poor forecasts.  Furthermore, even in the realm of economic forecasting, the goal is to paint out risks given limited data and an imperfect knowledge of the complex world around us – so judging the discipline on ex-post outcomes makes little sense (we have discussed the range of issues constantly).

However, in so far as sometimes economists come out and discuss their expectations like they are true fortune tellers, this cartoon has some weight 😉

Matt Nolan

GDP June 09: The recession is over

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So, the recession is over – not what I expected.

I had an ipredicit contract saying that GDP would be positive, but then I covered my position yesterday.  That will teach me 😉

Update:  Looks like it was the cold winter that pulled us out of recession – the increase in electricity generation more than accounted for the increase in production GDP over the quarter.

Randomly, RGNDI per person rose 1.7% in the quarter as well.  This is something I’m going to have to spend some time looking at, as on the face of it that is an awesomely good result.

Update 2:  Miguel points out the leap in RGNDI is because of yesterday’s reported movement of funds from BNZ.

Matt Nolan

Did we have positive growth in June?

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GDP is out later today, and there are calls from some that growth turned positive again in June.

While a mild bounce-back from the sharp March 09 fall is conceivable in of itself I’m not sure if I buy it.  Partial indicators have still been poor and the NZIER QSBO was still incredibly weak for the June quarter.

Personally, I would not be surprised seeing a moderate contraction for June above what the market is picking (currently a 0.2% fall).

Of course, the more concerning factor for me will be the sharp decline in RGNDI – which is a far better indicator of the true cost of the recession than GDP.

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?