Matt Nolan

RBNZ March MPS tomorrow

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The Reserve Bank will decide how much to cut interest rates tomorrow.

The market is currently expecting between a 50bp and a 75bp cut. However, there is still potential for a 100bp cut if the Bank downgrades their growth forecast sufficiently.

Ultimately, it will all be about the Bank’s forecast growth. In normal circumstances we might say that an OCR of 6% to 6.5% is neutral – however, we are expecting a period of sub-trend growth, a faltering credit market, and downward pressure on prices from overseas. In such an environment neutral could be substantially lower.

If the Bank now expects low growth to be substantially more persistent then I would expect a larger cut. Forget about “keeping bullets in the barrel” the Bank will want to get us sufficiently under neutral as soon as possible. If the Bank still expects a bounce back in growth (even following a sharp fall), then given the lags associated with monetary policy I would expect a relatively short cut.

As a result, in my opinion tomorrow’s decision will rest on the Bank’s “mediumish” term outlook (2-5 years). We will see I guess 😛

jamesz

Google Books

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Google Books continues to expand their range of available material and it’s great to see. Not only does it increase access to information but, for the material that you have to purchase, it increases the efficiency of the market for information. Previously you had to buy an entire textbook, or purchase a membership at an academic library, to get access to snippets of the text. Now you can buy just that snippet that you want on Google Books! Who does that help? Well, pretty much everyone in the market for information, actually. Read more

Matt Nolan

Farewell Espressoholic

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Farewell Espressoholic,

Although I have not frequented you for a while, I will never forget the gift you gave to me – the gift of Jägermeister.

I first enjoyed this beverage with you – and I will continue to consume it when you are gone.  For a fleeting moment before each shot I will be sure to keep you in my mind.

Matt Nolan

My main questions about the nine day fortnight

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It appears that more details on the nine day fortnight will be avaliable over the coming days – excellent.  I am looking forward to having this element of the policy explained to me:

Affected workers would spend the 10th day of their working fortnight in training or education, paid for by the Government.

Where exactly do you get training once a fortnight?

What exactly constitutes training/education – does it have to be accredited, or can “doing your job” be training?

If doing your job is the training isn’t this effectively a wage subsidy?  (Something I have noticed the National party don’t want to call it – even if it is one of the few ways to make some potential economic sense of the policy).

Matt Nolan

TWI and growth

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Roger J Kerr at the Rates Blog uses the following graph to state that GDP growth will recover sharply over the coming year.

Source (Rates Blog)

Although it is a pretty picture – it only tells us part of the story. And it does not imply that we will see a sharp rise in economic activity.

Read more

jamesz

Is organic farming sustainable?

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Paul Roberts has a very interesting and worthwhile discussion of sustainable farming over at Mother Jones. The key issue is:

  1. Organic farming uses a LOT more resources than normal farming;
  2. To call yourself organic and get that market recognition you need to be 100% organic;
  3. There is no market standard for recognising that a farmer is more sustainable or environmentally friendly than their rivals if they’re not organic.

I think that most consumers who buy organic are also the type of people who want to do the environmentally friendly thing. While organic farming may not be as polluting as farming with synthetic fertilizer it is much more resource intensive. So where’s the incentive for farmers to move towards less resource hungry AND more sustainable alternatives? Read more