One last post for the year

I wasn’t planning to write anything of substance today, but after my post yesterday an Australian reader pointed me in the direction of the Australian volume data on exports of services.

So here are two charts: one showing per capita exports of goods for New Zealand and Australia since 1991 (when the New Zealand quarterly population series begins) and the other showing services exports.

services x

In both countries, services export volumes have been fairly moribund for at least the last decade.  Tourism and education exports are the largest components of services exports, and both appear to be quite sensitive to the exchange rate.  But it is interesting that over the full period, real per capita services exports have grown at about the same rate in the two countries (a slightly different picture than in the nominal chart I showed yesterday).

goods x

The goods export picture is very different.  As I pointed out yesterday, total exports per capita have grown materially faster in Australia than in New Zealand. The difference is concentrated in goods exports.  Since 1991, real goods exports per capita from New Zealand have risen by 91 per cent, but those from Australia have risen by 144 per cent.

I’m not about to launch into a lengthy discussion of why, or what it means, but it is hard to get ahead –  or in New Zealand’s case to catch-up or even end the relative decline – when a country’s firms appear to have found it so difficult, and unremunerative, to increase their sales to the rest of the world.

This is my last post for the year.  Writing this blog has been a fascinating and rewarding experience, and I’m grateful to all those who have visited and read my stuff this year, and to those who have taken the time to comment.   Writing things down sharpens one’s own thinking, and I’ve enjoyed engaging with the ideas and people.   I’ll resume blogging at some stage in mid-January.

In the meantime, enjoy the summer break and Christmas celebrations.  For Christians, it is the festival celebration of a stunning truth: that God become man, in the form of a vulnerable child, to reconcile mankind to God.

In the beginning was the Word, and the Word was with God, and the Word was God.

And the Word was made flesh, and dwelt among us, (and we beheld his glory, the glory as of the only begotten of the Father,) full of grace and truth.



Exports: some trans-Tasman comparisons

One last post prompted  by the quarterly national accounts release last week.

I’ve shown charts highlighting how weak our per capita income growth has been, and how the volume of business investment per capita has only just got back to near pre-recessionary levels.

But what about exports?  In many respects they are the longer-term life blood of our economy –  the success New Zealand firms have in selling in the rest of the world shapes, over time, what we can afford to buy from the rest of the world.  And for a very small country, the rest of the world is most of the potential market.   I highlighted last week how little growth there has been in New Zealand’s export share of GDP over decades.

Real per capita exports in the September 2015 quarter were 8.5 per cent higher than they had been in December 2007, just prior to the recession.  In some ways, that doesn’t seem too bad –  plenty of components of GDP have been weaker.

But here are real per capita exports for both New Zealand and Australia since the start of 1991.  The starting point is determined simply by when the SNZ quarterly population series for New Zealand begins.

exports real pc

The trend line shows the trend in New Zealand per capita exports from the start of the series to the end of 2003.  There is a visible fall in the trend rate of growth of exports after that point, but it also coincides with the sharp rise in New Zealand’s real exchange rate which has not been sustainably reversed since then.

What about the comparison to Australia?  Australia achieved faster growth in real per capita exports in the first decade (around 1 per cent per annum faster).    Australia’s real exports per capita then went sideways for a number of years (and more or less moved parallel to ours over perhaps 2002 to 2012) before once again growing materially faster than New Zealand’s exports over the last few years.  Over the whole period since 1991, Australia’s exports per capita have risen 21.8 per cent faster than New Zealand’s.

One story sometimes told is that if the terms of trade rises then a country doesn’t need to export as much (by volume) –  if prices do the work, real resources can be used for other purposes (economic life is about consumption, not exports –  which are just a means to an end).  A higher exchange rate, on the back of the stronger terms of trade, redistributes resources away from the export sector.

Even if there is something to this point in principle, in practice it doesn’t look as though it explains much of the difference between the New Zealand and Australian performance.    After all, Australia had a much bigger terms of trade surge than New Zealand did.  Even now,  whether we count from 1991 or from when the terms of trade started moving up strongly (around 2003/04) Australia has had a stronger terms of trade than we have.

tot nz and aus

Of course, Australia is still in the midst of an adjustment:  exports are growing quite strongly on the back of the huge investment boom in the resources sector.   But, on the other hand, the global prices of the commodities Australia exports are still falling, taking the terms of trade with it.  If the terms of trade continue to fall much further, and stay low, some (much?) of that Australian investment might yet be regretted by the firms that undertook it –  and might not, with hindsight, have helped Australia much.   Only time will tell.

But lest anyone think Australia’s strong export performance is just about the resources sector, I found the chart comparing services exports in the two countries sobering (this reverts to nominal ratios to GDP because I couldn’t quickly find volume data for Australian services exports).  New Zealand –  the smaller country –  still has a higher foreign trade share of GDP.  But despite the way the terms of trade boosted the exchange rates in both countries (making for tough conditions for exporters of non commodity goods and services), services exports in Australia are now around the historic peak.  But in New Zealand –  despite the impressive surge in the last few quarters – services exports as a share of GDP are now barely 80 per cent of the previous peak.

services exports nz and aus

Not a particularly cheery note for the approaching Christmas season, but then in the church’s year it is still Advent, a solemn season of reflection, preparation, and self-examination.  So perhaps not so inappropriate after all.

Immigration is NOT causing poverty

I did an interview on Radio Live this morning on the economic impact of immigration.  When I went to listen to it afterwards, I found it was marketed under the heading “Immigration causing poverty”.  I’m not sure where they got that idea from what I’d said, but just to be clear my argument is that high rates of immigration to New Zealand over the last 60 or more years have worsened our overall economic performance. But even from my relatively pessimistic perspective, this is still one of the better off countries in the world.  And as readers will recognize, I reckon immigration, if anything, lowers unemployment rather than raises it –  ie puts more short-term pressure on demand than on supply.

In case anyone is interested, here is the link to the interview.—expert/tabid/506/articleID/110378/Default.aspx

UPDATE:  Thanks to Radio Live for changing the heading.

A perspective from the newly-released model

Somewhat belatedly, the Reserve Bank last month released a Discussion Paper outlining the features of the Bank’s relatively new forecasting and policy model, NZSIM.  I’m signed up to receive the email advisories when such papers are released, but it appears that on this occasion no advisory was sent out (an oversight apparently).  A commenter yesterday pointed me to the Discussion Paper.

The Reserve Bank has long prided itself on its formal macroeconomic models.   This dates back at least to the days of Roderick Deane, Chief Economist and later Deputy Governor of the Bank in the 1970s and early 1980s and one of the greatest figures in the history of the Reserve Bank.    The Reserve Bank was one of the early central bank adopters of formalised models, although most other advanced country central banks now use them in some role or another.  Historically, the Reserve Bank of Australia has tended to be towards the sceptical end on the role for economy-wide models in policymaking.

Maintaining such models has been a heavy investment for a small institution, especially as on at least a couple of occasions (over decades) the models have been junked almost as soon as they were finished.

And views on quite how large a role the models have ever played in the policy side of the Bank probably differ from observer to observer.  I was closely involved for a long time, and I tend towards the sceptical end.  The Bank had an unwarranted reputation for being somewhat in the thrall of whichever model it was using at the time.  I will always remember the time, fifteen years or so ago, when Glenn Stevens came over and spent several days observing our quarterly forecasting and policy round, and emerged commenting that he hadn’t realised that the Reserve Bank of New Zealand was really quite so pragmatic.

Structural models of the entire economy tend not to be overly useful for the sort of near-term forecasting (and backcasting and nowcasting) that largely shapes real-world monetary policy setting.  The current Deputy Governor, Grant Spencer, made this point well when, as an outsider speaking at a workshop to launch an earlier model in the 1990s, he noted that the technology was likely to be more useful for policy simulations (“what happens if we apply some shock to the system”) than for forecasting. There are simply too many institutional and data-related details that will be known to the forecaster at any particular time, but can’t be captured in a structural model, a deliberately stylised representation of the economy.  And that is even before one asks questions about anyone’s ability to forecast the economy more than a quarter or two ahead.

A good structural model captures the key features of how the designers think the economy works. But in an official agency, it is only likely to be useful if it reflects the key elements of how the decision-makers think the economy works   If it doesn’t, then over time either the model itself has to be adapted, or it will fall into disuse  (perhaps serving as an adding-up framework, and as a technology for generating nice charts and tables quickly –  which NZSIM was doing –  but with the structure of the model overridden pretty much all the time).  Obviously I’m no longer close enough to know what role NZSIM is playing in Graeme Wheeler’s deliberations (whether on forecasting or scenario analysis) but I’d be surprised if it was terribly large.  Apart from anything, for example, in this model, immigration is not explicitly treated, and fiscal policy changes never alter the deficit (any change in spending is automatically financed by a change in lump sum taxes)

Nonetheless, it is good to have the model Discussion Paper in the public domain.  As former Bank of England official Tony Yates has highlighted, (and here) the benchmark in this area remains the Federal Reserve

The Fed recently made its workhorse model FRB-US downloadable, with a dataset, code, everything you need to take a close look at what Governors say and what the staff have been doing for them.  The Bank of England should do the same.

Perhaps one could say the same about the Reserve Bank.  Having that additional material wouldn’t greatly interest me personally, but there are other people outside the Reserve Bank with considerable modelling background and experience for whom it could be useful, as part of further strengthening the external scrutiny of the Reserve Bank.   It can be useful to have a better sense of whether differences from the Bank arise because of different inputs (exogenous variables) or different assumptions about how the economy works.

But for now, I just wanted to highlight one chart in the Discussion Paper.  It shows the responses of a variety of variables to a 1 percentage point “monetary policy shock” –  roughly, a change in the policy rate of 100 basis points different than would the “policy rule” in the model would suggest.  There is nothing special about that particular policy rule –  indeed, I doubt it has ever been discussed in any detail at the Bank’s Monetary Policy Committee  – but also nothing especially objectionable about it.

impulse responses

But it is interesting because one could think of last year’s OCR tightenings as a 100 basis point monetary policy shock.  No doubt it won’t have been quite that in the formal model sense, but many people would now subscribe to the view that the tightening was largely (or completely) unnecessary.  Certainly, it has now been fully reversed, at least in nominal terms (real interest rates are still higher than they were when the tightenings began in March last year).

Within this model, a representation of the economy that the Bank is content to use in its internal processes and to describe as “the” new forecasting and policy model”, a 100 basis point monetary policy shock, that is unwound after a year or so, lowers inflation by about 0.2 per cent (roughly evenly split between tradables and non-tradables).  But it also has real economy effects:  after about five quarters, consumption is almost 1 per cent lower than it otherwise would be, and GDP is almost 0.6 per cent lower than it otherwise would be.

In a more formal way, it makes much the same point that the Minister of Finance was making the other day.

Finance Minister Bill English says the Reserve Bank raised interest rates “a bit too far” in 2014, contributing to slow economic growth at the start of the year.

“It’s one of the factors, along with dairy prices, that probably led to a much flatter 2015 than we had expected,” English told Bloomberg Television on Thursday evening.

“In retrospect, they lifted them a bit far” and “had to go back”, English said.

Graeme Wheeler’s experts might object to my characterisation of last year as a “monetary policy shock” in this sense, but the increases were clearly unnecessary and have been reversed.  Whether or not they could be justified at the time, the fact that they were unnecessary with hindsight means there will have been some short-term real economic cost.  The Bank’s model provides one way  –  using their view of how the economy works – of trying to get a plausible fix on the size of that cost. The model doesn’t have the unemployment rate within it, but  –  all else equal –  an additional 0.6 per cent of GDP might have been enough to have prevented the unemployment rate rising from 5.6 per cent in September 2014 to 6 per cent in September this year.

Bits and pieces

Having highlighted the Reserve Bank’s late Friday afternoon pre-Christmas release of the results of its “regulatory stocktake”, it will be interesting to see what other material government agencies slide out in the next few days, hoping for little or no sustained coverage.    I had a reply the other day to an Official Information Act request to Treasury, in which I’d asked about the basis for Treasury’s enthusiastic endorsement of TPP in the Joint Macroeconomic Declaration.  What they released wasn’t very interesting or useful (although if anyone wants it send me an email) but they did note “that the official government assessment of the final TPP agreement is contained in the National Interest Analysis, which will be publicly released soon”, which may also mean before Christmas.    That document should be interesting –  and hopefully it will get some coverage – although coming from those who negotiated the deal  it is no substitute for a serious independent analysis and evaluation carried out by, say, the Productivity Commission.

This morning’s Herald was a bit of a surprise.   The editorial ran under the heading “Rates rise may be first step to true recovery”.   Last week’s Fed Fund rate target increase is, according to our leading newspaper, “the first confirmation confidence is returning to at least one major economy since the global financial crisis”.

Of course, central banks don’t usually raise interest rates unless they think their own economies are doing reasonably well and that inflationary pressures might otherwise be about to start gathering.  Perhaps curiously, neither the word “inflation” nor the idea appeared in the Herald’s editorial at all.

But perhaps the leader-writers have forgotten about all those other advanced countries that have raised interest rates in the last six years, only to have to cut them again.  Central banks that have set out to tighten generally found that they had made a mistake (with the benefit of hindsight) and have had to reverse course.  And it isn’t just the tiddlers.  The ECB raised rates back to 2011, no doubt thinking that the crisis was behind them.  They were wrong.    Business, so we are told, is likely to draw confidence from the Fed’s action last week, and be more willing to invest.  It is an interesting nypothesis, but one which bears absolutely no relationship to what has been seen in the various countries that raised rates in recent years only to have to cut them again.  Investment rates around the advanced world remain low.  It gets tedious to keep mentioning New Zealand’s two policy reversals in the last six years –  but there is no sign that either of those ill-judged sets of tightenings did anything very positive for our economy.

Time will tell whether the Fed’s tightening last week was really warranted or desirable.  But even if it does prove to have been appropriate, it seems most unlikely that it will have been because higher interest rates and a higher exchange rate combine to give fresh impetus to the entrepreneurs and other investors in the United States.  Surely we deserve better analysis than the Herald provided today?

As I noted, investment remains pretty subdued around the advanced world.   New Zealand is no exception.

Here are a couple of charts drawn from last week’s national accounts release.  The first shows various cuts of gross fixed capital formation as a share of GDP: total, total private, total private excluding residential investment (ie a proxy for business investment) and general government.

nominal investment to gdp

With the exception of government investment, all of these series are well below their pre-recession peaks (typically in around 2006 and 2007).  In some respects that is really quite surprising.  New Zealand has had:

  • High average terms of trade, which should typically spark new investment to enable the economy to take full advantage,
  • The Christchurch repair and rebuild process (which doesn’t make us richer, but does add hugely to gross investment),
  • No serious domestic financial crisis to materially disrupt the credit allocation process, and
  • Much more rapid population growth than we had in the last few years prior to the recession.

New Zealand’s population is estimated to have grown at around 1 per cent in 2006 and 2007. By contrast, it is estimated to have increased by 1.95 per cent in the year to September 2015.  As I pointed out last week,  faster population growth rates would typically be expected to have big implications for investment, since the capital stock is around three times annual GDP.   More people require more capital, and getting that capital means a lot more investment.

For good or ill, government investment has remained quite strong, and will be boosted a bit further by last week’s announcement.  But my business investment proxy –  the purple line –  at around 10.5 per cent of GDP (and showing no sign of strengthening) is still two full percentage points lower than we saw through the later pre-recession years, when population growth rates were much lower than they are now.  And recall that even this measure includes the non-housing non-infrastructure rebuild expenditure.

For analysis over time, I tend to focus on ratios of nominal investment to nominal GDP.  That is partly on the advice of Statistics New Zealand, who point out that deflator problems –  which are particularly serious for investment –  make ratios of real investment to real GDP quite problematic over time.  But for those with a hankering for real investment measures, here is real private investment (excluding residential investment) per capita.  Even now, this series has only just got back to pre-recessionary levels, eight years on.  And with the unexpected surge in the population, if everything was working well –  and especially if the Reserve Bank was right about supply effects of migration exceeding demand effects even in the short-term –  we should have expected to have seen this series at new highs.

business investment per capita

Businesses invest to the extent that the expected returns to investment look attractive. In New Zealand, at present, there just don’t seem to be that many projects that have been  passing that hurdle. Unfortunately, it isn’t obvious why things should be any better next year.



Predictable pre-Christmas bureaucrats

Bureaucrats are mostly rather predictable.

I’d been conscious that the Reserve Bank had not yet released the results of its “regulatory stocktake”, even though submissions had closed three months ago.  The Friday before Christmas seemed like a good day for a release by an institution that might want as little coverage as possible of its decisions.  So I kept an eye on my email yesterday, and sure enough at 4.35pm up popped the results of the so-called stocktake.  As far I can see, there has been no media coverage so far, and even if any of the relevant journalists are still around, readership interest in anything serious is rapidly waning.  NBR had covered the issues earlier, and it has already published its last paper for the year.

The stocktake was never a very serious exercise. I was still at the Reserve Bank when the terms of reference was determined, and the Governor was clear then that he did not want any serious issues addressed.  It seemed that it was as much an exercise in appeasing the Minister, to show that the Bank was willing to look afresh at its stock of regulation and perhaps even tidy up some small stuff.

There were, in my reckoning, three main issues dealt with in the consultation document:

  • Refinements to the disclosure regime, generally with a view to reducing public disclosure
  • Refinements to the “fit and proper” regime
  • Some reflections on the Bank’s own policy processes for bank regulation.

I made a submission to the stocktake, along with many of the banks and variety of fairly well-informed individuals including the former Governor, Don Brash.

As far I can tell from reading the document the Bank released yesterday, it had no real interest in any submissions other than those of the banks and of a single rating agency.    It does report the gist of some of those individual submissions, but there is no sign that any of them had any impact on the Bank’s thinking, nor an attempt to explain why the Bank regards the arguments made as unconvincing.   That is one of the problems in having a regulatory agency set policy as well as implement it –  insiders will tend to be defenders of the status quo, and if they are responsive to outside input at all it will tend to be to submissions from those they have most to do with (in this case, the regulated entities, the banks).

The Reserve Bank has been putting progressively less emphasis on public disclosure by banks over the last decade or so.  The Bank itself has been quite open that it does not now use the information in the disclosure statements for supervisory purposes, having replaced it with a variety of ‘private reporting’ returns that no one else has access to.  Note that the Bank is very enamoured of what it describes as a “non-zero failure regime” –  that is, the system is run to allow for the possibility of bank failures (rather than to prevent them all), and with the aim of ensuring that any losses fall, as far as possible, on shareholders and creditors (including depositors).  There is no deposit insurance in New Zealand, and the Bank is staunchly opposed to the introduction of deposit insurance.  In other words, in their vision the risks from any failure of a bank fall first and foremost on creditors, not taxpayers.  And yet those creditors do not get access to the information that the Reserve Bank regards as vital to assess the health of banks.  The disclosure statements are really, in effect, just a legacy of history –  probably of no real value to creditors (since it isn’t the information the supervisors themselves use).

I pointed this out in my submission, and suggested a rather simpler and cheaper approach which would better reflect the risks the system is designed around –  ie providing creditors much the same information as the central bank gets, when the central bank gets it.

The Bank has canvassed an option somewhat along these lines in its consultative document, raising the option of a “continuous disclosure” model, something like what stock exchanges impose on listed entities, for periods between six-monthly disclosure statements (at present, disclosure statements are quarterly).

The Bank did not respond to my suggestion at all.  It did respond to the partial continuous disclosure idea.  The first argument advanced against it was “banks did not support this option”, but with no statement of why –  and recall that we don’t have access to submissions made to the Reserve Bank.  The Bank’s own concern seemed to be that it might lead to “confusion in the market”,  but quite why it should lead to such confusion, and among whom, is not made clear.

The Bank appears to have settled on a halfway house, that might be workable, but continues to maintain a charade –  a disclosure regime that forces banks to disclose some information, but not the information that the Reserve Bank itself uses for supervisory purposes, and only then with a considerable lag.  Perhaps there is a good reason for maintaining this distinction, but in its release yesterday the Bank gives no sign of having thought hard about the issues at all.

There is further consultation to come on the Bank’s preferred “dashboard” option for 0ff-quarter disclosure, but a strong hint in the document that the Bank wants to consult only with banks.  The Reserve Bank needs to remember that banks are the regulated entities, regulated in the public interest.  Registered bank perspectives on cost and workability should be welcomed, but the rationale for supervision is that banks represent a risk to the rest of us, not those in whose interests regulation is undertaken.

On “fit and proper”, again the Bank showed no interest in asking or answering some of the more fundamental challenges some submitters posed (eg straightforward ones such as “is there any evidence that fit and proper tests, applied discretionarily by bureaucrats, have done any good, in promoting the soundness of the financial system?”.  I proposed a much simpler and cheaper option than what the Bank has been doing (or will be doing in future): ban anyone with a conviction for dishonesty in the past 10 years and require senior officers and directors CVs to be listed on the website of the regulated entity.  I’d be surprised if the Reserve Bank, with the best will in the world, could improve on that option, not being granted the gifts of insight or foresight greater than those of mere creditors and shareholders.    Again, the Reserve Bank gave no hint of why it thought this (quicker and cheaper) approach would lead to worse outcomes.

But there was modestly encouraging stuff to come out of the stocktake.  In their, still secret, submissions several banks (or perhaps the Bankers’ Association, to protect individual banks) had raised concerns about the Bank’s policy processes.

Various banks had complained that the typical consultation period was far too short, for often rather complex issues.  The Bank has agreed that in future its normal consultation period will be 6 to 10 weeks,   but this looks like a rather small gain as the Bank reserves the right to ignore this guideline when it suits them (eg when the Governor wants to rush in new LVR restrictions, on very limited evidence).

Various banks also appear to have raised concerns about the robustness of the Reserve Bank’s cost-benefit analysis in support of regulatory changes (unsurprisingly I’d have thought, as I don’t recall any quantitative cost-benefit analysis for this year’s investor finance restrictions) and of the Bank’s regulatory impact statements.  Of course, RISs are mostly a sick joke around much of the public sector, but it is good to keep the pressure up on individual agencies –  especially independent ones –  to improve their game.  The Bank doesn’t offer anything very specific in response, but seems conscious of the concerns.

One bank “asked for a requirement that the Reserve Bank publish a summary of submissions and responses (including rationalise) to viewpoints not accepted.”

The Reserve Bank responded that “we currently aim to publish summaries of submissions that take into account responses to viewpoints not accepted.  We would welcome specific feedback from industry in cases where they feel this insufficient.”.  As I noted, none of the views I and other expressed in this consultation were responded to specifically.  Then again, I guess I’m not “industry”.  The Bank  might want to note that “industry” are not the (only) stakeholders –  they are the regulated entities.

Dearer to my heart was this comment:

One bank also suggested that submissions should be available online, in addition to the Reserve Bank publishing the summary of submissions. This bank noted that this is the standard practice for public consultations run by other government departments (e.g. the Ministry of Business, Innovation and Employment).

This is a point I’ve made repeatedly.  And it isn’t only government departments. Submissions to Select Committees are public, submissions on City Council consultations are public, and submissions to the Productivity Commission are public. It is simply good practice, taking seriously the idea of open government.  Such submissions are not just public after all the decisions have been made, but while deliberations are going on.  The Bank has always been very resistant to such openness.  However, they have now shifted their ground somewhat:

Our current approach is based on our understanding that respondents prefer to keep their submissions confidential. Prior feedback indicated that banks, in particular, were reticent to share cost information and the Reserve Bank is concerned that the publication of submissions would impact the quality and detail of the submission feedback. On the other hand we also recognise the importance of transparency in the policy-making process, so we will return to this issue and consult on a revised approach under which the default position would be that all submissions are published on our website (although submitters could ask to have any confidential information in submissions redacted). We will add this issue our register of “Future Policy Work.”

I think this statement tells one a lot about the extent to which the Reserve Bank sees its clients as primarily the institutions it regulates, rather than the public the institution exists for.  I’m sure that banks would generally prefer to keep their submissions confidential, and it is precisely for that reason that their submissions, in particular, should be made public.  It is too easy for a cosy relationship to develop between the regulator and the regulated (Ross Levene among others have written extensively on this topic) ,and although I don’t think it has really happened to a great extent in New Zealand it is a risk that constantly needs guarding against.

In any case, kudos to the Bank for a modest step forward.  I’ll look forward to their consultation document on this issue to see whether it represents a serious move to the sort of consistent transparency other agencies adopt.  And I’ll be interested to see how they plan to get around the limitations of section 105 of the Reserve Bank Act –  which, as I noted a few months ago, really needs amending.

In the meantime, I lodged an OIA request months ago for the submissions on this consultation. I agreed with the Bank to delay the request taking effect until the results of the stocktake were published (otherwise they would just have declined it), so in the new spirit of openness I will look forward to a fairly comprehensive release  –  not just private individual submissions – in the New Year.  Given that they have had the submissions for months already, if they were serious about transparency they could release them right now (“as soon as reasonably practical” is what the Official Information Act says).

I will take some convincing that they are serious about transparency. Recall that in the course of this year they have already:

  • Refused to publish many of the submissions on the investor finance restrictions consultation (all of them initially)
  • Refused to publish most of the background material to the 2012 PTA (under threat of heavy charges)
  • Have still not published their forecasting model  [UPDATE: a commenter points out that the model has now been released, something I had missed]
  • Have refused to publish any of the substantive papers as part of their work programme on reforming governance of the Reserve Bank
  • Have refused to publish any minutes of meetings of the Governing Committee
  • Have refused to publish any material provided to the Bank’s Board as the basis for the Board’s evaluation of the September Monetary Policy Statement.

And then I had an email from them the other day about another request.  I had asked for copies of minutes of the Bank’s Board’s meetings for a couple of years in the late 1980s.  I wanted them for two, quite unrelated, pieces of work I was doing.  I assumed this would be uncontroversial –  it is material that is almost 30 years old, and not conceivably withholdable.  Actually, I had made a similar request for a couple of other years’ Board minutes when I was still at the Bank, and was told I was free to photocopy the relevant papers, which I did.

The Board papers are all nicely bound and properly stored, so there is no research or collation involved in meeting my request.  I deliberately just asked for all the minutes –  perhaps five pages a months, 11 months a year, rather than excerpts, to minimise any effort in meeting the request.  All it required was some undemanding photocopying or scanning, taking no more than hour in total.

But the Bank first took almost 20 working days to respond (“as soon as reasonably practicable”?), and even then has not determined whether the information is releasable at all.  And it is demanding $276 as a deposit to even begin determining whether the material could be released.   Note, by contrast, the easily availability of historical Board (equivalent) minutes at the Bank of England.

The Reserve Bank has announced:

The Reserve Bank has a policy of charging for information provided in response to Official Information requests when the chargeable time taken to provide the information exceeds one hour, and charging for copying when the volume exceeds 20 pages. Our charges are $38 per half hour of time and 20c per page for copying (GST inclusive).

Their stance appears to be technically legal, but hardly in the spirit of open government[1].  I’m curious how many people have been charged by the Reserve Bank under its policy, and am wondering whether I should now expect a bill for (a) the request for submissions on the regulatory stocktake, and (b) the request for information on the Reserve Bank’s volte face on the short-term impact of immigration.

The institution needs serious reform. Among other things, it needs to take on board the spirit of pro-active release.   It remains a bit puzzling why the Minister of Finance has closed down work on even reforming the governance provisions.  Occasional sideways or mildly critical comments about the Bank’s recent monetary policy mistakes are all very well, but they don’t seem to lead anywhere.


[1] And I’d happily come in to the Bank and photocopy the pages myself, and even cover the photocopying costs.

Living in an age of diminished expectations

The latest quarterly national accounts data were out yesterday.  These December releases are particularly helpful because they take full account of the new annual national accounts data released a few weeks ago.

Understandably, there is a lot of focus on what the quarterly data might, or might not, mean for monetary policy.  I’d have thought the answer was not much –  the September quarter was a bit stronger than many had expected, and only time will tell whether that is more than a one-off, or whether (as I suspect is more likely) the economy will settle back to something more like the very weak growth (per capita) recorded in the first half of the year.

What about a slightly longer-term perspective?  Here is annual growth in real per capita GDP, for as long as Stats NZ has the quarterly data for.  I’ve used a series that averages the expenditure and production measures.

real gdp pc dec 15

Look how weak the recoveries since 2009 have been.  Peak growth was back in 2011, just after the double-dip recession.  Despite the record terms of trade, real per capita GDP growth got only briefly above 2 per cent at the end of last year –  even then only just reaching the average growth rate for the 17 years up to 2008.  For the year to September, per capita growth has fallen back to the average seen after 2008 –  and it would take another quarter at least as strong as September to stop that growth rate dropping even further in December.   (And as many commentators have highlighted, the more variable income measures have been falling in per capita terms, as real growth has slowed and the terms of trade have fallen.)

The second chart is similar to one I ran a few weeks ago.  It just puts a trend line through per capita real GDP for 1991 to 2008, and then compares how actual real per capita GDP has compared with that 1991-2008 trend.  The gap now is something like 15 per cent.

real gdp pc trend dec 15

Reasonable people might differ on where trend lines should be drawn – here I simply started at the start of the series, and choose the end of 2008 as the end since most people would reckon the output gap had closed by then.  But using almost any trend measure, the economic performance has been pretty disappointing.  Of course, it has been disappointing in most countries, but we’ve had the benefit of a record terms of trade and didn’t face the costs/distortions of a serious domestic financial crisis.

One of the striking aspects of the recent quarterly data has been the increase in the volume of services exports –  up by more than 20 per cent since the start of last year.  This seems to reflect both an increase in tourism volumes and in the number of foreign students.  Any exports increase resource pressures right now, and in an underemployed economy should generally be welcomed.  Nonetheless, it is worth keeping a longer-term perspective in mind.

services exports

Even after the dramatic increases of the last few quarters, real exports of services per capita have not even quite got back to the peaks reached more than ten years ago.

And one wonders just how much more good quality growth we can expect in this sector.   International guest nights data seem to have been going more or less sideways over the last few months, and it is difficult not to think that much of the growth in education exports (almost all at the bottom end of the market –  polytechs and PTEs) is resulting from the “export incentive” of the right to work in New Zealand and the desire to secure a residence visa –  the total number of which is more or less capped.