Matt Nolan

Globally contracting money stocks

/2 Comments/in , , /by

In a chart on the Rates Blog today they point out that the money stock (note not really the money supply, depending on how you define it) in the Euro Zone is declining.  The indication then is that “Europe looks bad”.

However, the money stock is also dropping in Australia and New Zealand.  If there were figures for the US, I suspect we would see some contraction there as well.

Does this mean economic activity is taking a sharp turn downwards?  Not necessarily – we may be seeing a sharp uptick in the velocity of money or a movement in reserves as global interest rates tick up.  Furthermore, remember that growth in the money stock in many countries ACCELERATED in the middle of the great financial crisis – so to be honest, it is hard to tell exactly what is going on with these figures.

Overall, falling money stock (in conjunction with an easing in borrowing statistics) suggests we should be cautious – it looks like deleveraging is happening.  However, it is not a clear indicator of where the economy is directly going – if relative prices in the economy are adjusting then activity could still be rolling along nicely.

Matt Nolan

Maths and economics

/8 Comments/in , /by

There has been a lot of negative talk about the maths in economics – like a huge amount.  Just look at these links, some of them are poor and reactionary, but some of them are excellent and the last two are my favourite (*, *, *,*,*,*).

Now although I believe much of this attack is excessive, and I believe the role of maths in economics is very very important, like all protestations there is a grain of truth to be found.

Read more

Matt Nolan

Catching Australia: Really?

/12 Comments/in /by

Dr Bollard is spot on in saying that it isn’t likely that we will catch up to Australia in incomes (ht Kiwiblog and Rates Blog).

Simply put, I think the majority of economists believe that the ability of government to influence per capita incomes (especially given the relative size and scope of governance in Aussie and NZ) is relatively negligible.  Australians are 30% more wealthy then we are, and the belief is that a lot of this comes down to locational, scale, and endowment type advantages – not “magic policy”.

Furthermore, Australia is running down its natural capital stock here – any production numbers should take the temporary nature of some of this income into account.

And finally, just because production is 30% higher in Australia, what is the actual gap in happiness?

I’ve never liked the aim of catching Australia, it seems pointless (see here).  We should instead “aim” to have a society where citizens are as free from coercion as possible, so that they have the ability to find satisfaction.  I am glad that the RBNZ governor agrees.

Matt Nolan

Video: On the unemployment leap

/3 Comments/in , /by

Agnitio sent me a couple of links to an interview I did on unemployment last night (here and here).

It is consistent with what I wrote yesterday, even if it doesn’t seem that way.  Furthermore, I don’t believe the government was too “inactive” in this case – we aren’t a centrally planned economy, blaming the government appears pretty arbitrary.

Relative to my expectations (which albeit were low) the government actually performed quite well in terms of the recession – by not really doing anything excessive, but still trying to make sure that any painful transitions are smoothed over (by not removing, and augmenting, automatic stabilisers).

Matt Nolan

The Dec 09 UR: Terrible, but not

/6 Comments/in /by

What the hell does my title mean.

Well, let me be straight up – the headline number is a lot worse than expected … especially by me personally.

However, the more general “underutilisation” measure (the number unemployed + the number of people who want more hours all as a proportion of the labour market) was in-line with what I felt were my overly optimistic expectations!

What does this suggest – well it sort of suggests that the people that were laid off during the December quarter were the people who wanted more hours in September, sort of (as we are excluding normal seasonal factors as well).

My opinion here?  The fall in hours worked points to a weak December, especially in conjunction with other partial indicators (QSBO, money supply, inflation expectations).

But so what, the past sucked.  Forward looking expectations are strong, our trading partners are genuinely recovering, and we have an intelligent Reserve Bank that understands how to balance inflation expectations and prevent arbitrary pain in the economy.  When we see hours worked pick up it is game on – that is the one to watch.

Economic activity will remain below trend for some time, unemployment will stay higher than we would like for some time.  But surprising even the shock of a much higher UR number is enough to suggest that the outlook is significantly worse than it was.  Why is this surprising?  If you had told me that UR=7.3% yesterday without telling me about underutilisation I would have been in a mild state of shock.  However, putting these numbers in context has eased my mind.

Update:  Other commentary at Rates Blog, Kiwiblog, Gonzo, the Standard, and No-Right Turn.

The unemployment issue is a lot more complicated then it is being made out to be methinks – it looks like NZ is undergoing a structural shift as well as a standard “recession”, blaming the government doesn’t make sense in this type of case.  For an example, look at manufacturing employment …

Matt Nolan

Strategy spaces and monetary policy

/3 Comments/in , , , /by

Over at Worthwhile Canadian Initiative, Nick Rowe suggests that central banks should find something else to discuss instead of interest rates.  The analogy provided is that of oligopoly competition: namely how the Cournot-Nash and Bertrand games have exceedingly different outcomes, even though the only superficial difference is that one game involves choosing output and the other game involves choosing price.

However, in the same way I don’t believe the difference in these games is just the product of “framing”, I am not sure if the call to arms against using interest rates as a focal point is necessarily that compelling.

Read more