Ahh you’re at Massey, good times 😉

Indeed any “rebalancing” is essentially redistribution … we should be asking who the winners and losers are a bit more directly. I find the entire metaphor, and the way it is used to hide trade-offs, to be the antithesis of what an economist does.

We need to be a bit careful with equilibrium. We are never in a full “stock” equilibrium, and economists know this. I prefer the concept of equilibrating tendencies – all other things equal, we move towards equilibrium, this movement is the underlying tendency that exists. If we introduce a correspondingly larger shock, we will introduce a tendency to move towards the next equilibrium. This is where we get down to the differences between short, medium, and long term as well – and all that sort of jazz. But like everything, the way we discuss it depends on the question we are answering.

There are likely two reasons the RBNZ is using it:

1) There own value judgments
2) Because they don’t want to be seen “at fault” if other poor policy settings lead to a crisis in NZ – and the more wealth dispersion, or the greater gross debt levels are (irrespective of net debt), the smaller the external shock necessary to cause an ugly situation.

We’ll see what happens!

Yes, policy is hard – especially if one thinks about it! Sam Richardson has done a good job enlightening me in this respect this semester 🙂

And I take your point, as I interpret it, that values largely drive policy choices, so I see the term ‘rebalance’ as used by Treasury and the government as implying a deliberate redistribution from the poor to the rich, because that’s where I see their values lie (of course, I could be wrong).

And, of course, ‘rebalance’ implies previous balance (equilibrium), and since equilibrium only exist in economists’ models, it is born as a fallacy.

Q. So why is the RB using the term?

A. Values?

I’d note that, the key thing is that when we have a big relative price shift the RBNZ wants resources to head towards that (where relative value is higher). Monetary policy actions will be to prevent slack overall, but price signals have to be allowed to say “hey, we need capital and labour to consider moving to Chch”. That is a balancing act, that’s cool.

Government actions “should” take into account distributional impacts. So I can see where your concern comes from. Overall, I find the policy prescriptions flying around at the moment from pretty much everyone (probably even myself) to be wildly inconsistent – and the reason for that is because people are “hedging bets” because we are uncertain. And tbh, this is where I’m glad the RBNZ is making a real big effort to communicate a lot.

I still think they leave themselves to be open to being misread due to their obsession with structure. I can understand why Treasury might use a term like “rebalancing” when they are putting in places changes in policy (even then 😐 ), I cannot see why central banks are using it. What can I say, I’m a bit old fashioned 😉

This really concerns me, and I have mentioned it to you previously. If the RBNZ does not, in your words, from memory, ‘look through’ the rebuild, then some part of the rest of the economy must deflate- or at least be actively inhibited from inflating. And we all know that ‘fiscal consolidation’ means spending cuts and National governments have reflexively always cut benefits and the public service even absent any policy direction from the RBNZ. But roads are always good!

So we would appear to be heading towards a two speed economy: Christchurch and dairy booming (and good on them) but the rest of us fitted with a governor (couldn’t resist that one!) or even sharply decelerated.

My plea would remain that the RBNZ simply allow inflation to rock along at the top of the target zone, or even up to 4%, temporarily, and explicitly, while the rebuild works through the system. It is, after all, the mother of all one-offs!

With that out of my system, I agree with your general point that the RBNZ is playing exactly into the general perception of what the RB’s job is, ie running the economy, and now it can further be seen as taking sides by intervening to depreciate (or stabilise, if you like) the currency, hurting those who have watched jobs go overseas on the promise of cheaper imports and rewarding exporters as being deserving of special treatment – class warfare?

I’ll close with a question: does the RB actually have a working definition of what constitutes a bubble?

PS The last bit of your reply to Brennan should be in 101 textbooks. Classic. 🙂

“I’m afraid you may have lost that battle Matt. According to this speech,
the Reserve Bank’s mandate now extends to protecting overseas currency
traders from hurting themselves”

LOL.

If I was being less generous I imagine I could read many of these things in quite a surprisingly interventionist light – and as a general outsourcing of “economic management” from politicians to technocrats to avoid democracy and make transfers to interest groups less transparent.

But I’m trying to be less cynical than my underlying natural state makes me.

I’m afraid you may have lost that battle Matt. According to this speech, the Reserve Bank’s mandate now extends to protecting overseas currency traders from hurting themselves:

“Investors also appear to downplay the liquidity risks inherent in a small market like New Zealand. Our past exchange rate cycles have exhibited substantial overshooting followed by a sharp and rapid exchange rate depreciation. Such rapid exchange rate corrections reflect the drain in market liquidity that can occur when a small market like New Zealand begins to turn down.”
“We can only hope to smooth the peaks off the exchange rate and diminish investor perceptions that the New Zealand dollar is a one-way bet”

Nice to know that someone’s looking out for the poor wee lambs; after all, John Paulson has had a rough time of it lately.

I’m assuming they are more talk than action. I am not particularly keen on our monetary authority taking on a lot of inherent risk with no democratic mandate – it is up to elected officials to arbitrarily piss people’s labour output against the wall 😉

RBNZ simply is not capable of acting like a hedge fund. They have Bloomberg Terminals, surely they realise how out of their depth they are?

They are smart people, but not smart enough to take the other side of the trade from George Soros et al.