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Comments on: That’s it, I’m done: RBNZ takes the path of discretion http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/ The Visible Hand in Economics Mon, 07 Oct 2013 19:01:26 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: LVR speed limits are here | The Dismal Science http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/#comment-42285 Mon, 07 Oct 2013 19:01:26 +0000 http://www.tvhe.co.nz/?p=10037#comment-42285 […] take issue with the amount of discretion applied by the RBNZ, as Matt noted earlier. If there is systemic risk because of high risk loans, they should be using these rules all the […]

]]> By: Matt Nolan http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/#comment-42254 Mon, 30 Sep 2013 18:20:00 +0000 http://www.tvhe.co.nz/?p=10037#comment-42254 In reply to MillAhab.

Good point – it is always best to try to give an argument its strongest airing to figure out whether we agree on it or not!

From what I can tell, their current view is based on the fact that there is some type of “financial cycle” above and beyond the economic cycle, and that this needs to be dealt with actively and separately. This is the Borio view:

http://www.economist.com/blogs/freeexchange/2012/12/reforming-macroeconomics

http://www.voxeu.org/article/measuring-potential-output-eye-financial-cycle

Contrary to what he says – his advice appears incredibly ad hoc to me, and I’m very far from convinced.

I also think that if we have the Bank trying to do both active monetary and financial stability policy in this way – they need to be split into two organisations:

http://www.tvhe.co.nz/2010/02/24/seperation-of-monetary-and-financial-stability-issues/

Still, definitely an interesting issue!

]]> By: MillAhab http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/#comment-42253 Mon, 30 Sep 2013 09:12:00 +0000 http://www.tvhe.co.nz/?p=10037#comment-42253 In reply to Matt Nolan.

As am I!

I guess I was looking for some kind of analogous structure that would explain all of this behaviour beyond the simple explanation of “financial stability”… Hence, the corporate planning analogy.

I look forward to many more musings on this and the other macro tools I am sure! 😉

]]> By: Matt Nolan http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/#comment-42252 Mon, 30 Sep 2013 03:14:00 +0000 http://www.tvhe.co.nz/?p=10037#comment-42252 In reply to MillAhab.

Even if we were to accept the analogy – the RBNZ is not mandated to determine the “direction of NZ Inc”. That is one of the key points I take issue with here!

If we add in the fact I take serious issue with the NZ Inc analogy in the first place:

http://www.tvhe.co.nz/2013/08/16/thinking-about-aaron-inc/

Then the reason I find it inappropriate is fairly clear 😉

If the government intends to run New Zealand as a corporation, I would be concerned. If an unelected technocratic body decides it wants to have a go at running elements of NZ as a corporation I am very concerned!

]]> By: MillAhab http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/#comment-42251 Mon, 30 Sep 2013 00:33:00 +0000 http://www.tvhe.co.nz/?p=10037#comment-42251 The RBNZ’s approach makes much more sense if you consider that ‘NZ’ is actually more ‘NZ Inc’ than is commonly accepted. In large corporations there are dedicated teams (Strategy/Finance) that spend their time analysing what the best use and allocation of the corporation’s capital is. By analysing these ‘portfolios’ of capital and creating scenarios for each, these teams then set about moving the corporation in that direction (business planning + budgeting).
If you consider that the NZ residential housing market is simply one portfolio of allocated capital in ‘NZ Inc’ the RBNZ strategy/finance team has through its analysis has determined that too much capital has been allocated in this portfolio and through the only tool (regulation) it has available to it is directing NZ Inc’s employees (oops I mean citizens) to adjust their planning and finances accordingly which in time will shift capital (and in a sense risk) to other areas of NZ Inc. A fanicful scenario? Not when there are around 2 dozen corpoations larger than ‘NZ Inc’ that do indeed conduct this very sort of exercise all the time….

]]> By: Adam Lando http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/#comment-42245 Sat, 28 Sep 2013 09:26:00 +0000 http://www.tvhe.co.nz/?p=10037#comment-42245 Easy option to get useful information as well as share good stuff with good ideas and concepts.Great job and great blog.

]]> By: Matt Nolan http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/#comment-42238 Thu, 26 Sep 2013 19:51:00 +0000 http://www.tvhe.co.nz/?p=10037#comment-42238 In reply to boristhefrog.

That is indeed my concern – adding the fact that it seems to be inadvertent, and that they aren’t democratically elected, it actually smells a bit worse though 🙁

]]> By: Matt Nolan http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/#comment-42239 Thu, 26 Sep 2013 19:51:00 +0000 http://www.tvhe.co.nz/?p=10037#comment-42239 In reply to Shamubeel Eaqub.

Is that character based on Trotsky? It looks like him, and it sounds like him!

]]> By: Matt Nolan http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/#comment-42237 Thu, 26 Sep 2013 19:50:00 +0000 http://www.tvhe.co.nz/?p=10037#comment-42237 In reply to Jason B..

Cheers for the link, I’ll be sure to have a look!

I’m being a little bit cheeky suggesting that I’m stopping discussing macroprudential policy because of this – in truth things are a bit different. I am moving towards a focus on income data and as a result I won’t have the time to keep up with the literature on macroprudential things – so I will be shifting what I write. I am trying to find people to write on macroprudential matters here – so the subject should still be alive, I just wont be the one writing 😉

]]> By: Jason B. http://www.tvhe.co.nz/2013/09/26/thats-it-im-done-rbnz-takes-the-path-of-discretion/#comment-42233 Thu, 26 Sep 2013 11:40:00 +0000 http://www.tvhe.co.nz/?p=10037#comment-42233 Interesting post. I remember half a year ago watching Olivier Blanchard give warnings about the possibility of creating a “democracy deficit”, and wondering about the risks of central banks overstepping reasonable boundaries with macroprudential policy. About a minute after the linked time: http://www.youtube.com/watch?v=yxDW6CL-Qvw#t=31m10s

Sad to hear RBNZ may be heading down this dangerous path. Do you know what other central banks are doing? Have you heard of any dissent or disagreement within RBNZ? From memory they were after feedback on their proposals earlier in the year. I wonder if many people showed concern or of this is something only a few are talking about. If the latter, maybe this should not be your last post Matt.

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