tag:blogger.com,1999:blog-2830084253401570472.post1269951888394981046..comments2024-03-28T09:22:36.967+13:00Comments on Offsetting Behaviour: The dollar is a priceEric Cramptonhttp://www.blogger.com/profile/15831696523324469713noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-2830084253401570472.post-15472480716659134022013-03-06T10:26:14.362+13:002013-03-06T10:26:14.362+13:00Right. I think I agree so far. Now, what if only...Right. I think I agree so far. Now, what if only the stock of notes and coins is halved (and the NZD claims against the Reserve Bank, if you like), but debts are left intact? Would this still have the full effect of halving P?Tim Makariosnoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-23321070148321783762013-03-06T09:51:56.985+13:002013-03-06T09:51:56.985+13:00In pieces then:
1) MV=PQ; halving M will halve P a...In pieces then:<br />1) MV=PQ; halving M will halve P assuming price flexibility and no effect on V; currency appreciates<br />2) More realistically, RBNZ sees what's happening and offsets entirely to maintain Pdot at 1-3% over the medium term.<br />3) If the creditors are domestic, no effect. If foreign, then NZ-based demand for foreign currency to pay back foreign-denominated loans drops and NZD appreciates.Eric Cramptonhttp://offsettingbehaviour.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-41083368227661136242013-03-05T16:16:37.206+13:002013-03-05T16:16:37.206+13:00At best the computations put an upper limit on the...At best the computations put an upper limit on the value of Bitcoins (but I'm not even sure about that; at any given point in time, new Bitcoins enter circulation at the same rate, regardless of how much computational power is devoted to "mining" them, because the difficulty of the computation is automatically adjusted). The computations, which are useless in themselves, don't explain why Bitcoins are worth anything at all.<br /><br />Let's try this: if everyone holding NZD notes and coins threw away half of them, and creditors all simultaneously forgave half of each NZD-denominated debt owed to them, would this tend towards doubling the value of the dollar? (Noting that this tendency may be opposed by things like minimum wage laws, for example, which may (or may not) put downward pressure on the value of the dollar.)Tim Makariosnoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-37348731978796089552013-03-05T15:17:16.551+13:002013-03-05T15:17:16.551+13:00Wasn't BitCoin based on something real - the n...Wasn't BitCoin based on something real - the number of computations needed to run some complicated factorisation?Eric Cramptonhttp://offsettingbehaviour.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-42789692236356109612013-03-05T15:16:13.992+13:002013-03-05T15:16:13.992+13:00I didn't say the policy was racist, I said it ...I didn't say the policy was racist, I said it could be a dog-whistle for racists. If the press were full of stories about other rich foreigners bidding up prices, I'd dismiss the dog-whistle aspect. But the usual stories are around Chinese investors buying up property. Given that background context, the xenophobic policy is a dog-whistle for racists. If there weren't that background context, it wouldn't be.Eric Cramptonhttp://offsettingbehaviour.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-50990147642883792622013-03-05T14:56:22.070+13:002013-03-05T14:56:22.070+13:00"fiat money works because everyone trusts tha..."fiat money works because everyone trusts that it does and that it will continue to". Perhaps, but this doesn't begin to say why the dollar is worth what it is, rather than twice that much, for instance.<br /><br />Or are you suggesting that stickiness is fundamental to the value of a fiat currency, rather than merely a temporary distortion to it? Von Mises seemed to think it fundamental; for example, in Part 2, Chapter 2, of the Theory of Money and Credit he says "This link with a pre-existing exchange-value is necessary not only for commodity money, but equally for credit money and fiat money. No fiat money could ever come into existence if it did not satisfy this condition." I don't find this convincing, though, partly because Bitcoin exists.Tim Makariosnoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-30804774609821727152013-03-05T13:29:28.694+13:002013-03-05T13:29:28.694+13:00ARRRGH... Xenophobia != Racism. The concern isn...ARRRGH... Xenophobia != Racism. The concern isn't due to the belief that Chinese Asians are an inferior race (which would be racism), the concern is because Chinese "aren't" New Zealanders (Xenophobia).ByterNZnoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-40285693727512628782013-03-05T09:26:54.742+13:002013-03-05T09:26:54.742+13:00Good thing the story didn't get out at the tim...Good thing the story didn't get out at the time... as I understand things, RBNZ was then having a hard enough time with runs on the currency. But I suppose it would have been ... interesting to see what currency traders would have done with a PM who believed you could devalue against only one currency in a world without independent central banks. <br /><br />The gains from getting everyone up to a 200-level understanding of micro and macro seem just so very large. Might as well wish for ponies at the same time I suppose.Eric Cramptonhttp://offsettingbehaviour.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-9120474500343812962013-03-05T04:59:57.793+13:002013-03-05T04:59:57.793+13:00Absolutely true!Absolutely true!Dave Gileshttp://twitter.com/DEAGilesnoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-49979215685255626882013-03-04T11:13:19.063+13:002013-03-04T11:13:19.063+13:00Start with Menger's text on money. Gold emerge...Start with Menger's text on money. Gold emerges to facilitate exchange, store value. Bits of paper start representing gold. Update since then to removing the gold backing; fiat money works because everyone trusts that it does and that it will continue to.Eric Cramptonhttp://offsettingbehaviour.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-85470547693190076722013-03-04T10:54:39.527+13:002013-03-04T10:54:39.527+13:00Why is there any demand at all? I know I demand d...Why is there any demand at all? I know I demand dollars because people accept them as payment for goods and services. But why do they demand dollars? On the face of it, it appears to be mathematical induction without a base case.Tim Makariosnoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-26425986851962208452013-03-04T10:53:52.806+13:002013-03-04T10:53:52.806+13:00Let's restrict ourselves to some ceteris parib...Let's restrict ourselves to some ceteris paribus exchange rate change driven by, let's say, worries about Spain that otherwise wouldn't directly affect NZ. So that we can have an exchange rate change that's driven by something other than relative demand for NZ exports.<br /><br />It cannot be the case that the high exchange rate is universally good for price setters. Take the limit case where we had a monopoly milk exporter who was the whole of international traded milk. The monopolist is already setting quantity and price to maximise surplus; an exchange rate increase would mean the monopolist would need to change its pricing to keep things level. <br /><br />Among exporters, those facing a relatively more inelastic demand curve will fare better than those facing a relatively elastic demand curve when the exchange rate goes up, all else equal. You could perhaps imagine cases where the hike acts as a temporary cartel price Schelling point, but if that could hold in the longer term, it would have held without the exchange rate move. But in all cases, "better" here is relative: exporters, all else equal, prefer a lower exchange rate because that lowers their real wage bill and the cost of their domestically produced non-traded inputs. A whole ton is packed into "all else equal" here though. Do they use imported intermediate goods for starters? How flexible are wages? How much can they shift production around a set of countries to re-optimise?Eric Cramptonhttp://offsettingbehaviour.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-60033756744424051572013-03-04T10:33:56.189+13:002013-03-04T10:33:56.189+13:00Supply and demand, both of which are more complica...Supply and demand, both of which are more complicated than for other goods.Eric Cramptonhttp://offsettingbehaviour.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-60386764114580201102013-03-04T10:19:24.963+13:002013-03-04T10:19:24.963+13:00I'd heard the story but didn't know if it ...I'd heard the story but didn't know if it were true or apocryphal. Hadn't known you were in the room!Eric Cramptonhttp://offsettingbehaviour.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-41305073773467312232013-03-02T14:13:05.114+13:002013-03-02T14:13:05.114+13:00So, I've been thinking on this post and Matt N...So, I've been thinking on this post and Matt Nolan's linked post. And I posted this comment both here and there to get thoughts from both of you. <br /><br />I intuitively always assume that a high exchange rate benefits <br />exporters (they get paid more) and harms local production. But I hadn't<br /> thought that all the way through. I've done some thought experiments <br />here http://technpol.wordpress.com/..., and I think my conclusion is:<br /><br /> - A high exchange rate is universally good for the country if you are a<br /> price setter - because your exports are worth more in international <br />terms<br /> - A high exchange rate makes no difference to your terms of <br />trade if you are a price taker, your price in external currency has not <br />changed. However, depending on what happens in your local economy (do <br />locally produced goods get cheaper in local currency terms or stay <br />priced the same) it will alter the distribution of income between <br />different segments of the economy.<br />In short, I think this debate is <br />therefore one in which exporters who are price takers are attempting to <br />avoid their incomes reducing relative to the other people in NZ. It <br />isn't a discussion about NZ v's the world, it's a discussion about some <br />special interests wanting a better deal.PaulLhttp://Technpol.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-60869760961100329572013-03-02T10:40:41.644+13:002013-03-02T10:40:41.644+13:00I recall sitting in a meeting with a former PM one...I recall sitting in a meeting with a former PM one Sunday afternoon, years ago, and we were asked by him (several times) why he couldn't just devalue the NZ dollar against the AUS dollar, but leave it unchanged relative to all other currencies (e.g. USD), Of course this was in pre-floating rate days.Dave Gileshttp://twitter.com/DEAGilesnoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-65682164662816177412013-03-01T18:36:03.323+13:002013-03-01T18:36:03.323+13:00So, what determines the value of a dollar?So, what determines the value of a dollar?Tim Makariosnoreply@blogger.com