tag:blogger.com,1999:blog-2830084253401570472.post6949626398076073123..comments2024-03-28T09:22:36.967+13:00Comments on Offsetting Behaviour: Looking through the ETS [update]Eric Cramptonhttp://www.blogger.com/profile/15831696523324469713noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-2830084253401570472.post-15434005052819261892010-06-02T14:45:06.820+12:002010-06-02T14:45:06.820+12:00I admit I don't really know a lot about how th...I admit I don't really know a lot about how the ETS credits work, but I remember hearing somewhere that perhaps firms may stockpile the credits (was there even some thing about a 2 for 1 deal for a while at $25) and they would use these as required after the prices start floating upwards (assuming they do go upwards). This may delay or at least partially offset the increase in their cost that you are talking about. Assuming agents are rational (such and economist..) I would guess they would pick up on this and factor it into their expectations of inflation.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-26951643451193134092010-06-02T14:12:22.765+12:002010-06-02T14:12:22.765+12:00@Matt: Agree that a persistent relative price shoc...@Matt: Agree that a persistent relative price shock isn't inflation, but ETS isn't a carbon tax: if this were a carbon tax plus commensurate tax reductions, all would be fine: definitely then just a relative price effect. <br /><br />@Anon: Awesome, thanks. Will update post shortly. I agree that RBNZ rightly looks through the first level shift with ETS. But, the price of permits has to increase over time, and that rate of price increase, I'd have thought, would feed into inflation expectations.Eric Cramptonhttps://www.blogger.com/profile/15831696523324469713noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-10307487082733196852010-06-02T13:19:44.374+12:002010-06-02T13:19:44.374+12:00Hi Eric, the RBNZ are aware of these issues, if yo...Hi Eric, the RBNZ are aware of these issues, if you go an look at the latest MPS on page 20 they have a box about the ETS and the effects. I would say listen to what they say there than what an article says about what John Key says the RBNZ told him.<br /><br />They break the effects down into direct and indirect effects, and 1st and 2nd round effects. I believe it is the 2nd round effects that they may have to respond to.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-62082337224700178482010-06-02T10:23:12.151+12:002010-06-02T10:23:12.151+12:00My impression is that the ETS is assumed to be a r...My impression is that the ETS is assumed to be a relative price shock - rather than a demand shock. <br /><br />Persistent relative price shocks aren't inflation either - unless we believe they will feed into inflation expectations. As a result, the Reserve Bank is effectively just saying that they don't expect inflation expectations to change markedly in the face of the ETS.<br /><br />That is my take on it.Matt Nolanhttps://www.blogger.com/profile/05615455113796090765noreply@blogger.com