tag:blogger.com,1999:blog-2830084253401570472.post1278986851909219602..comments2024-03-28T09:22:36.967+13:00Comments on Offsetting Behaviour: Dutch diseases, the dollar, and the MPSEric Cramptonhttp://www.blogger.com/profile/15831696523324469713noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2830084253401570472.post-74125253429968448512012-03-09T13:29:40.176+13:002012-03-09T13:29:40.176+13:00Sectoral issues are still not the forte of monetar...Sectoral issues are still not the forte of monetary policy - any structural intervention that can be justified should come from the bank. <br /><br />Also, the case for intervention in the face of any "dutch disease" depends strongly on how we view expectations formation - as well as the fact that it is costly to reverse investment. This makes any conclusion an empirical issue, and of the few papers I've seen trying to quantify dutch disease I've never seen one conclusively show that there was an economic loss.Matt Nolanhttps://www.blogger.com/profile/05615455113796090765noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-42637172180279036572012-03-09T10:39:41.258+13:002012-03-09T10:39:41.258+13:00If the nominal frictions exist, then there'd b...If the nominal frictions exist, then there'd be a (New Keynesian) case for intervention, though not necessarily a strong one. Kinda depends on how large you think the distortion would be relative to other relevant distortions (sticky prices, sticky wages, etc).Jameshttps://www.blogger.com/profile/07995395711510222406noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-88994599486153420362012-03-09T07:49:59.308+13:002012-03-09T07:49:59.308+13:00The idea that we need to "rebalance" the...The idea that we need to "rebalance" the economy is most definitely a structural one - and they made it essentially the centre point of their monetary policy statement.<br /><br />It isn't just about action, but about how they communicate what their mandate is and what they are responsible for. They are feeding the ideas that we need to favour exports, and that it is the responsibility of monetary policy.Matt Nolanhttps://www.blogger.com/profile/05615455113796090765noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-91694903910707832052012-03-08T22:22:17.629+13:002012-03-08T22:22:17.629+13:00That's going to be true for any sectoral adjus...That's going to be true for any sectoral adjustment though. Should RBNZ intervene to make sure that there's never any shift in production? Or to put the brakes on any investments with those characteristics? Not really their remit.Eric Cramptonhttps://www.blogger.com/profile/15831696523324469713noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-65287639743195389732012-03-08T22:18:32.998+13:002012-03-08T22:18:32.998+13:00I think we're differing more in tone than in s...I think we're differing more in tone than in substance, though I was commenting only on the MPS; I've not seen anything following the statement except a few of Alex Tarrant's tweets. I'd said, though less explicitly, that there's no reason to believe the exchange rate is wrong.<br /><br />Agreed that, if "structural" means savings rates and housing vs other investments (bit hard to tell in MPS), it's not really RBNZ's bailiwick. But they only talked about that - I didn't see any indication that they were going to do anything about the exchange rate except inasmuch as it hit the inflation target's lower bound. Blah blah blah, discounted by the markets within hours.<br /><br />What did I miss that looked like RBNZ doing something indicating potential action on things outside their remit?Eric Cramptonhttps://www.blogger.com/profile/15831696523324469713noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-57173723181493304902012-03-08T16:16:46.593+13:002012-03-08T16:16:46.593+13:00Eric, this time I think you are being far too gene...Eric, this time I think you are being far too generous. They've spent most of the time following the statement talking about the exchange rate as a structural "rebalacing" issue.<br /><br />In truth, any structural issues are in the scope of Treasury not the central bank - this is the view the Fed sticks to, and its a view that is consistent with the mandates of the individual organisations.<br /><br />Add this to the fact that they've never really conclusively shown that the real exchange rate is "too high" (by showing why it is the case) - then add to this the fact that even though household debt is elevated, net household assets are at near historically high levels (relative to income) - and you end up in a situation where I'm extremely uncomfortable with what is going on and the reasoning that is being provided.<br /><br />If the Bank truly thinks its responsible for the structure of the New Zealand economy then we are reaching a situation where New Zealand's previously strong economic institutions are nearing failure in my opinion ... and if I hear another person talking about the relative price of tradables to non-tradables without admitting that this just "Baumol's cost disease" - which is justifiable - I think I might pass out.Matt Nolanhttps://www.blogger.com/profile/05615455113796090765noreply@blogger.comtag:blogger.com,1999:blog-2830084253401570472.post-69345797479394021732012-03-08T14:46:52.244+13:002012-03-08T14:46:52.244+13:00"Commodity price driven dollar appreciation i..."Commodity price driven dollar appreciation isn't as much a disease as a recommendation to shift resources to their more highly valued uses. We're shifting towards dairy manufacturing and away from other forms of manufacturing. I wouldn't call it a disease in need of treatment."<br /><br />I'm entirely sure what to make of it, but a fairly common argument is that dairy investment is slow (time-to-build?) and intensive (non-substitutable assets?), and significant moves toward it homogenize the production process. If there is a reversal or stagnation of the run-up in the foreign demand for dairy, there could be an extended period (longer than would otherwise be the case) of low output while the production process readjusts. (Throw in "investment adjustment costs" or "financial frictions" if you want to be formal about the inefficiency story, here). <br /><br />Thoughts?Jameshttps://www.blogger.com/profile/07995395711510222406noreply@blogger.com