Is the gym ripping me off: An Economic perspective

Last week I re-joined gym with Les Mills, as my previous fitness club (Revive) got shut down. The amenities provided and the corresponding higher price charged by Les Mills made two things come to mind:

  • Why are the prices different between these gyms?
  • Are they “extracting surplus” from me – in other words overcharging me?

To think about this, I want to talk about competition – specifically an idea called monopolistic competition.

Read more

2019 NZIER Economics Award

NZIER had their annual NZIER Economics Award earlier in the week – or as we often call it NZ Economist of the Year.  The winner for 2019 was John McDermott, current Executive Director and Motu and former Chief Economist of the RBNZ.

John was an excellent choice for this award. He has contributed significantly to NZ and international literature, while influencing policy making in NZ – especially through the high pressure times of the Global Financial Crisis. Furthermore, while doing all this he has taken time to do some economics teaching in Wellington, helping to inspire future generations of students.

Read more

Monopsony employers paying higher wages?!

As part of my job as a researcher I like to read about different topics – I have done work on health economics, labour economics, and more recently firm level economics.  One topic that comes up across all these fields is the idea of a monopsony buyer for different things.

Looking across this blog I’ve seen monopsony discussed in terms of the labour market and in terms of migration and monetary policy.  However, I want to focus on concentration indices (as a proxy for monopsony) and wages.

Read more

What is secular stagnation and why do we care?

I’ve heard the arguments that secular stagnation refers to a situation with low long-term interest rates – reaching the zero lower bound on nominal rate often – low inflation and low output growth.  But what does this really mean?

Read more

Neo-fisherism and unconventional monetary policy- is it a solution to low inflation?

It took me a while to convince myself to write about “neo-fisherism” as a solution to low trend inflation.

The motivation behind neo-fisherism is relatively intuitive – we have observed nominal interest rates and inflation move together, and require an explanation that supports that stylised fact.  Furthermore, the idea behind neo-fisherism is that there is the Fisher effect describes how inflation expectations must move when nominal interest rate goes changes – allowing us to keep our assumption of “neutrality” in the long run with a fixed real interest rate, rather than relying on changes in the neutral real rate of interest.

However, at face value this completely contradicts the conventional monetary policy set up, where we were taught that inflation rate and nominal interest rate follow the Taylor principle, so that when you cut the nominal interest rate, then inflation (and inflation expectations) goes up.  Given this way of thinking, and the empirical regularity that inflation and nominal interest rates DO move together, does this overturn conventional monetary economics?

Read more

Government and central bank coordination in a low inflation world

In my previous posts on the liquidity trap and about US Treasury bond purchases I have mentioned that central banks and governments should coordinate their policies as a part of unconventional monetary policy when the interest rates are near the zero lower bound and inflation is persistently low.

However, there are costs and benefits associated with any coordination game. The benchmark coordination model and the restricted version of it are well described in English, Erceg, Lopez-Salido 2017 Read more