Matt Nolan

RBNZ liquidity measures: What do they mean?

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This post is more of an open discussion post. I want to know what YOU think about the new Reserve Bank liquidity measures.

We know that BNZ, Goldman Sacs, the Press, and fellow bloggers such as the Hive and Mish believe that this (and yesterdays financial market review) illustrates a significant change in stance by the Bank. However the Bank itself believes that this illustrates no change in stance, but is simply mean’t to keep our monetary policy practice in-line with other countries – in the words of CPW, they wish to sit at the big boys table.

My knowledge of such things is decidedly limited – however, I’ll tell you what I think they mean, then you can correct me 😉

The main changes according to the Bank are:

  1. Extension of the range of securities eligible for acceptance in the Reserve Bank’s domestic liquidity operations to include: NZ-registered NZ dollar AAA rated securities, including Residential Mortgage-backed securities, and AA rated NZ government sector debt – including Government agencies, SOEs and Local Authorities.
  2. The discount margin applied in the Bank’s Overnight Reverse Repo Facility will be 50 basis points for all eligible securities.
  3. A graduated ‘haircut’ regime will replace the existing limit structure for all securities eligible for domestic liquidity operations.
  4. Extension of Overnight Reverse Repo Facility from 1 day to a maximum of 30 days.

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Matt Nolan

Discount factors and death

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What is a discount factor? A discount factor tells us the rate of time preferences between periods of time – in other words it gives us a measure for how much “stuff” we are willing to sacrifice in the future in order to consumer now.

Economists often use “exponential discounting“. Furthermore Rauparaha has discussed how hyperbolic discounting more accurately reflecting peoples true time preference at a given point in time. However, there are other issues that influence the way people discount. The one I want to focus on today is death.

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Matt Nolan

Emissions trading scheme: The NZIER model

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NZIER has released a very interesting report on the ETS (emissions trading scheme) in New Zealand (see their reports page – April). In this report they find that the economic cost of the emissions trading scheme will be eight times the cost of the “government paying” for the scheme. Although this eases to 4-5 times the cost in the long-run (which is the cost we should be interested in if we believe climate change policy will continue indefinitely) this is still a significant cost.

Although I think this is an interesting and important point to raise, and that it will add greatly to the debate to climate change policies – I get the feeling the result is slightly exaggerated by some of the underlying assumptions. Here’s the areas that I think are important to revist:

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Matt Nolan

April 08 OCR review

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In a widely expected move, the RBNZ left the official cash rate unchanged in April. As a result, primary interest turned to the statement.

In the statement the RBNZ admitted that economic activity has weakened more markedly than they expected in March. However, they placed the labour market, government spending, and commodity prices that will keep inflation outcomes elevated.

The most significant change in position came from there weighing of the risks: Read more

Matt Nolan

Biofuels and food prices

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Why is everyone acting so surprised about the fact that biofuel regulation will (and has) led to higher food prices? We said it would in August (well to be fair, Keith Woodford from Lincoln University said it before us, and other people were saying it before that 😉 ).

However, unlike some commentators, we do not believe that the fact that world food prices are rising should impact our decision on whether to make biofuels mandatory (something I don’t agree with), as NZ’s demand for biofuels will be so small that it won’t have an impact on the world price for food.

Also there are some unintended benefits for NZ from the mandatory regulations in the US and Europe. Corn etc has become more expensive, making it more costly for foreign dairy farmers to produce milk. This is part of the reason that milk spot prices have doubled over the last year – injecting a lot of money into the NZ economy.

On that note, I want to complain about this: (h.t. Kiwiblog)

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goonix

The curse of human capital

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Consider the ‘traditional’ capitalist (envisage the Monopoly™ man). This capitalist owns the means of production, such as a factory, or piece of machinery, a building, or piece of land. The capitalist uses their means of production to extract economic profit.

Times are changing. As we move towards a service based economy, like all other developed countries, increasingly the means of production take the form of human capital. Human capital is the capital that is built up within an individual, for example through education, on the job training and everyday work. The holder of human capital is herein referred to as the ‘modern’ capitalist (envisage a slimmer, more refined Monopoly™ person, possible black, possibly Asian, possibly a woman, possibly trans-gender – we don’t discriminate).

Human capital is the foundation of professional service firms, ranging from the glamorous, such as private sector economic consulting firms, to the pedestrian, such as lawyers and accountants.
But this trend towards human capital accumulation brings us to what I term the curse of human capital. Read more