Lies, damned lies, and Irish statistics

In March, Ireland's statistical agency, the Central Statistics Office (CSO), estimated that Ireland's GDP had grown in real terms in 2015 by 7.8%.

Yesterday the CSO came out with a revised estimate. It now says that Ireland's GDP in 2015 grew by - wait for it - 26.3%.

This is both absurd, and yet technically correct. Absurd, because as the Irish Times commentary headline put it, 'Crazy growth figures bear scant relationship to reality'. Yet technically correct, because the CSO says it follows the methodology of the "European version of the current UN mandated international standards for national accounts statistics, the System of National Accounts (SNA) 2008". And there's nothing wrong with doing that: our own Statistics NZ uses the same UN approach (details here if you're ever looking for them).

What's actually happened is that, for assorted tax reasons, over a short period of time in 2015, a number of international companies shifted the domicile of patents they own, or aircraft they lease, or their own corporate domicile, to Ireland. And, apparently, if you apply the standard national accounts methodology to those transactions, you get 26.3% GDP growth. I say "apparently" because the logic of some of the accounting escapes me, but let's take it at face value that the Irish statisticians cranked the right handles and out came the "right" UN-consistent answer.

There is now, as you can imagine, a big barney going on in Ireland about the reliability of the GDP statistics and how can people tell how the economy is actually behaving, but I was struck by two other thoughts.

One was the complete absence of any helpful explanation from the CSO. Here is the complete text of their statistical release.

Is there any attempt to reconcile their earlier 7.8% stab at it with the new 23.6%? No. Is there anything helpful at all about what actually drove the new results? No. Nothing. Zip. Nada.

Or in Irish, neamhní, faic, dada, rud ar bith*.

The relevance to us in New Zealand is that there's been a bit of a debate, here and overseas, about how far statistical agencies ought to go in providing analysis or commentary on the statistics they produce. Statistics New Zealand, I'm pleased to say, is down the right end of this debate, and goes some way to help users understand what's going on.  As an example, the commentary on the latest GDP release, for the March quarter, told us that "The anticipated El Niño weather pattern was not as severe as expected. The normal seasonal fall in milk production was less pronounced than usual, resulting in seasonally adjusted volumes of milk produced increasing slightly", which is helpful when you're trying to make sense of the agricultural production component of GDP.

We don't want Stats to veer off the reservation into opinion or editorial, but we most certainly do want them, at a minimum, to keep up the level of explanation they currently provide. As for the CSO, it badly needs to develop some customer focus and join the 21st century**.

The other thought I had was the silliness of some media and financial market reactions to small changes in GDP from what they had expected. As the Irish example has inadvertently reminded us, GDP is an estimate, a more or less rough stab at the aggregate level of economic activity. It comes with various kinds of measurement and survey error, and has complex and debatable inbuilt assumptions, and not just the Irish ones around intellectual property and official domicile. The measurement of the output of the financial sector, for example, is a contentious issue.

Our latest official stab at GDP growth for the full year to March is 2.4% (or 2.8% just comparing March '16 with March '15). The reality is that "low to mid 2's" is probably just as good a description.

*Pronounced navnee, fack, dodduh, rud er bih, though the 'd's are more like the 'th' in the English 'the'. I particularly like faic, as in "the statistics make faic-all sense".

** (Update July 14) This is too harsh. While I'm still of the view that the statistical release was inadequate, the CSO did supplement it with a separate press release (see comments below). Yesterday the CSO also announced that, while it will continue to estimate GDP/GNP according to the international rules (as it is obliged to), it is also convening a new consultative group to look at "how best to provide insight and understanding of all aspects of the Irish economy", including "whether new presentations of existing information would improve understanding". That's a good move. In that context I hope they have a look at moving on from bare bones presentation of the data.

Book report - July 2016

Although readers (going by page views) seem to like the odd diversion into the world of books, I haven't had the time to do many recent reports, the latest being 'Then and now', my look at the latest volume of Charles Moore's excellent biography of Margaret Thatcher (before that, I'd written up The Fall of the Celtic Tiger, and earlier GDP: A brief but affectionate history and Wellbeing Economics: Future directions for New Zealand).

Now, along has come another great new biography - Volker Ullrich's Hitler, Ascent 1889-1939, with a follow-up second volume in the works. It's both very readable (Ullrich is as much journalist as historian) and professional: Ullrich has gone back to many of the original sources and found new takes on them.  People at every end of the political spectrum have loved it: the Guardian's review called it "an outstanding study" and the Telegraph's review called it "chilling and superb".  Even if you've already read Joachim Fest's Hitler: A Biography and Ian Kershaw's Hitler 1889-1936: Hubris and Hitler 1936-1945: Nemesis, you'll get a lot out of this book.

His overall approach, responding to the question that German media asked abut the 2004 film Downfall, "Are we permitted to depict Hitler as a human being?", is to say, "The only answer is: not only are we permitted, we are obliged to". It would certainly be easier, he argues, to explain Hitler away as either a criminally energetic cretin or a psychopathic monster, but one-dimensional perspectives miss important parts of the story. He concedes that what he regards as the key chapter, "Hitler as Human Being", has a "somewhat unsettling title" but goes on to say

To depict Hitler in human terms is not to elicit sympathy for him or to downplay his crimes. This biography seeks to show the sort of person he was since the 1920s: a fanatic Jew-hater, who could tactically conceal his anti-Semitism but who never lost sight of his aim of 'removing' Jews from German society

For me the key takeaways were two. One was that the idea of Hitler as a confused grab-bag of incoherent noxious ideas is wrong: all the evidence is that he had a long-held, mutually consistent set of them, melding the Treaty of Versailles and the 'stab in the back', the need to restore German power through rearmament and to claim lebensraum in eastern Europe, and hatred of Jews and Bolshevism (he may have caught his particularly virulent dose of anti-semitism in Vienna, which is an easy place to catch it). And the other was the total shallowness of the Nazis' pretence at being a democratic party: within weeks they had suborned virtually every civil institution - the public sector, trade unions, professional associations - into executive arms of the Nazi party. If you ever needed one insight into the nature of the Nazi regime, it's this: Hitler was appointed Chancellor on January 30, 1933. Dachau opened on March 22.

As a colleague recently wrote to me, "The fact that we study Hitler biographies to understand our own times is frightening". So it is, but here we are, with very ugly movements underway in the US and parts of Europe (and undercurrents of them in Brexit). Time to wise up on how and why these things get going, and why they need to be stopped. And if any of this has piqued your interest, then move on to Richard Evans' wonderful three volume set, The Coming of the Third Reich, The Third Reich in Power, and The Third Reich at War.

On the fiction side, there are some great books set against the backdrop of the Second World War and the run-up to it. If you'd like thrillers generally around the general themes of intelligence agencies' manoeuverings and resistance against German occupation, often entangling civilians and often in obscure parts of central Europe, then you'll appreciate everything Alan Furst has written: I've just finished his latest, A Hero in France. Each is self-contained: you can start anywhere. Another great series is Phillip Kerr's one about Bernie Gunther, an officer in the Berlin criminal police during the war. Best read chronologically: last time I was in the University Book Shop in Dunedin, they were selling a cheap omnibus edition of the first three books, marketed as Berlin Noir. You'll also have to go chronologically through David Downing's Furst-like six book espionage series about an Anglo-American journalist in Berlin from the late 1930s onwards: they're named after Berlin railway stations, starting with Zoo Station and finishing with Masaryk Station.

On a darker note, there's Jonathan Littell's The Kindly Ones, a huge book formally about SD officer Max Aue, actually an allegory about the German people's relationship with Nazism. As flavour, in one incident, Max is with the Nazi annihilation squads in Eastern Europe:  they go to find a clearing in a forest to bury/hide the corpses, only to find all of the clearings already full of victims.

What else have I been reading that's worth a look? Christopher Petit's The Butchers of Berlin, another Berlin police story from 1943. John Guy's Elizabeth: The Forgotten Years, excellent biography of Elizabeth I. Andrew Taylor, The Ashes of London, a fine whodunnit set in the immediate aftermath of the Great Fire of London in 1666. And although I'm not usually a great one for legal thrillers, try Gianrico Carofiglio, who in real-life is an anti-Mafia prosecutor and has written a series set against that background: I enjoyed his latest, A Fine Line. And though they're aimed at younger readers, anyone of any age will enjoy Neil Gaiman's The Graveyard Book and Katherine Rundell's The Wolf Wilder. And for something completely different, Antoine Laurain's The President's Hat (translated from French, the president being Mitterand).

Not much economics in that lot, I know, but I'll make up for it with two I've got on the bedside table, Richard Grossman's Wrong: Nine economic policy disasters and what we can learn from them, and David Evans' and Richard Schmalensee's Matchmakers: The New Economics of Multisided Platforms. Also lined up to go: Philippe Sands, East West Street: On the origins of "genocide" and "crimes against  humanity"; Timothy Garton Ash, Free Speech: Ten Principles for a Connected World;  and Ann Patty, Living with a Dead Language: My Romance with Latin.

The law is an ass

My paper, 'Abuse of market power: the end of "make-believe" analysis?', drew a good crowd at the NZ Association of Economists' annual conference. That's partly because people like to session-hop at conferences and listen to areas outside their usual specialty - a fair few in the audience were folks who don't usually 'do' competition - and partly, I'd guess, because people reckon it's an important policy issue: markets won't work as we'd want them to, if competition is subverted by players with market power.

From the discussion, it was clear that people were left shaking their heads at the folly of our statutory wording (in s36 of the Commerce Act) and its subsequent jurisprudence in the courts. Very briefly, the folly consists of:

• statutory wording that looks for a 'purpose' to knacker competition and the 'taking advantage' of market power, but
• 'purpose' is subjective (barring careless e-mail trails) and often business behaviour has multiple purposes, many benign, which can veil the bad stuff, while 
• 'taking advantage' has been interpreted by our courts as meaning you're home free if you've done something that a firm without market power would have done
• which completely misses the point that something done by a firm with market power can have very different effects than the same thing done by a firm without market power, and
• leads to an examination of what would have happened in a fantasy counterfactual world, and
• nowhere looks at the important issue of what are the actual or likely effects of the behaviour in the market, and
• Australia's just come to the view that their regime (very like ours) is not fit for purpose, and 
• in sum the whole shebang comes close to giving firms with market power a free pass on pretty much anything that isn't the most obvious of rorts.

But you knew that (and if you didn't, there's chapter and verse in the paper).

The reason I'm raising it again is that there's an opportunity for people who may be concerned about the current toothless (and internationally idiosyncratic) state of affairs to do something about it.

Last year, MBIE started a 'targeted review of the Commerce Act', which included looking at the operation of s36. An initial issues paper drew 39 submissions. But now there's an opportunity for cross-submissions: you don't have to be one of the original submitters to get into the fray. You have till July 21 to get any views you've got into the policy pot. Full details of the process thus far can be found here, including links to the previous submissions and the logistics of submitting your own.

I'd emphasise that this isn't an anti-big-business agenda. The primary point here is the proper functioning of markets, for everyone's benefit, businesses and consumers alike. The big loser from anti-competitive behaviour is often other businesses.

In any event, get your views on the record. If you're not in, you can't win.

It's all in your head

The Reserve Bank came out with a new discussion paper last week, 'Inflation expectations and low inflation in New Zealand'. While Discussion Papers are "mainly for academic and professional economists" - and, I should add, represent the staffers' views and not the Reserve Bank's - this one is relatively easy going, and worth a look, because the authors (Özer Karagedikli and Dr John McDermott) have had a go at investigating one of the major puzzles in modern macroeconomics: why inflation has stayed unusually low.

There are other biggies - why has productivity growth (assuming we've measured it right) slowed down and what if anything can we do about it, and what can (or should) policymakers do if they run out of fiscal space and/or hit the zero lower bound for interest rates - but the unexpectedly low inflation puzzle is front and centre across the developed world.

I'd love to say they nailed it, but once I'd got my head around what they'd done, I wasn't totally convinced.

The heart of their argument runs like this. Inflation expectations affect actual inflation: if (for example) people expect low inflation, they'll settle for low wage rises, which will feed into low actual inflation. Fair enough. And then they say: what if inflation expectations don't just arrive out of the blue but are (partially or largely) influenced by actual inflation? Suppose actual inflation is, unexpectedly, only 1.5% instead of 2.0%. People revise their expectations down in line with the lower actual rate, and their lowered expectations (and the price and wage behaviours that follow) drive actual inflation lower again, to say 1.0%. Expectations are revised again ... you get the idea. Voilà - a self-fulfilling circle driving inflation down (or up, if the initial surprise had been higher than expected actual inflation) and one that has nothing to do with the strength of the economy or other things you might have expected to dominate what happened to inflation.

So they built a nice little model, which worked just as they argue. If you'd like to go through the details I've got a summary below, though you'll find the paper accessible enough in its own terms if you'd prefer to go to the source.

It is an interesting paper. But I was left with several questions at the end of the exercise.

The first is around how they model expectations. They say, people's expected rate of inflation will be some blend of (a) the latest actual outcome over some recent period, a backward looking measure, and (b) the expected inflation rate as measured in a survey, a forward looking measure. And they find that, modelled this way, not only do expectations have a strong influence on actual inflation but the weight that people apparently place on the latest actual inflation rate has increased markedly since 2008-09. So you have an explanation for the persistence of low inflation: a self-validating and strengthening feedback loop from low inflation to even lower expectations to even lower inflation again.

But this is all rather odd. The survey that asks about people's expected inflation rate is their inflation expectation, by definition. Subsequently saying that expectations are actually a mixture of those expectations and actual inflation is a bit of logical gymnastics I can't quite follow. But, as they say, "The empirical treatment of inflation expectations is crucial for the purpose of this paper", and if you're not convinced by their formula (and I'm not), some of the results fall over.

Even if you go along with their approach, though, you're still left with other questions.

One is: why? Why did people change in recent years from putting more weight on what they expect to happen, to putting more weight on what's actually happened? Have they suddenly stopped believing that they can get a handle on what lies around the corner - which wouldn't surprise me, in a post-GFC, post Brexit world? The researchers may well have unearthed an interesting mechanism or process, but we're still left with an unsolved, if different, problem.

Another question is: in the world they've modelled, what's happened to central bank credibility? If everybody believed their local central bank would indeed keep inflation around 2% (or wherever), then their expectations would stay around 2% irrespective of any wobbles in actual inflation along the way. Perhaps people in New Zealand (and the eurozone, and Japan) have indeed thrown in the towel and now prefer to believe the evidence of their own lying eyes rather than subscribe to what central bank governors say. If true, that's important, but again it raises a whole new research agenda to unpick the next layer of answers.

Bottom line? Because of the somewhat idiosyncratic modelling of expectations in this research, I wouldn't get too hung up on its exact outcomes. But I think it does make a good, wider point. Expectations have always mattered: that's seen most obviously in hyperinflations and deflations. But clearly they matter in more normal times, too, and they may not have got the policy attention from central banks that they should have.

That's changing. In the US, the Fed has been paying more attention to the financial markets' view on five year forward inflation, for example, and recent Monetary Policy Statements from the RBNZ have been zeroing in on expectations, too: they've included an 'inflation expectations curve'. So far so good: the big issue, though, is having realised that expectations matter, and possibly matter a lot, do central banks know how to manage expectations back towards levels more consistent with the banks' inflation targets?

The economics behind it

The authors start with the well-known Phillips Curve - an inverse relationship between inflation and some sort of measure of slack in the economy, often an unemployment rate - but not any old Phillips Curve. They've used a New Keynesian Phillips Curve, which adds in an extra factor, people's expectations of inflation. In this version, expectations have an independent life of their own in influencing inflation: if people, or firms, expect inflation to rise, they'll get their retaliation in first in their own wage and price setting, and inflation will rise even if the unemployment rate doesn't move. The authors also added in an extra term, to allow for the effect of import prices on overall inflation.

If you prefer symbols to words, here they are:

π_t = βE_tπ_t+1+ κy_t+ γΔp_m,t+ ε_t

where π_t is  inflation at time t; E_tπ_t+1  is expected inflation in the following period, which has a weight of β; y_t is a measure of capacity utilisation (the coefficient κ will be negative if you use the traditional Phillips Curve unemployment rate and positive if you use an output gap); Δp_m,t is the change in import prices, which has a weight of γ; and ε_t is the usual stochastic error term.

The final wrinkle of importance is they look at that expected inflation term, and ask where does it come from? And they say that people will come to a view based partly on what they've recently experienced and partly on what they think will come next (as shown in consumer surveys, for example). So it will be something like this:

E_tπ_t+1= θπ^a_t + (1 - θ)π^s_t

where the 'a' superscript means some measure of recent actual inflation and the 's' superscript means some survey measure of expected inflation. I haven't used their exact notation here, because if you can write π with a bar over it in Blogger, then you're a cleverer operator than I am.

And then they estimate the whole thing. It fits pretty well, with R²'s around the 0.7 mark, and expectations do indeed play a big role. All good: then comes the interesting bit. They look at how the coefficients vary (or not) over time. And they find that θ, the weight on recent actual inflation when people come to take a view on what next, has risen substantially from 2008-09, as shown below.

And that's where I part company with the analysis. People form expectations with half a view on what's recently happened, and half a view on what might happen next? Sure. But once they've done that, then they've settled on a view. That's it. Expectations aren't a combination of that view and current inflation - that's already been factored in.

Competition is good for you, part 294

My post on how competition has been improving productivity and lowering prices in both Australia (retailing in general) and New Zealand (electricity) didn't go down well with everyone. One commenter on Twitter said that it was all very well for companies to try to become more efficient to cope with increased competition, but "In their desperation for competitiveness, where do the retailers push employee wages? Down. Migrants & casualisation".

As it happens, there hasn't been a lot of research on the distributional effects of greater competition: a big survey last year done by European Commission staff, 'Ex-post economic evaluation of competition policy enforcement: A review of the literature' found (p29) that

When a lack of competition raises prices and reduces the quality of products, it causes damages to all consumers, including the poorest people. In this context, it could be interesting to analyse the distributional effects of market power. Existing evidence seems to suggest that an increase in competition is particularly beneficial for low-income people. However, the literature in this area remains in its infancy and there are a number of topics deserving further research.

But as luck would have it, along comes some new research, 'Competition policy and inclusive growth', which has had a crack at looking at the distributional impact of increasing competition (through the various effects of  the European Union's policies against anti-competitive mergers and cartels). Their bottom line is that "Interventions have important redistributive effects that benefit the poorest in society", and here are some of the key numbers. The model captures the eventual economy-wide effect of a 'mark-up' shock (a setback to producers' profit margins from competition enforcement) on different groups in society.

You can see that there are more jobs, and higher wages, for rich and poor alike, but poorer households' consumer spending goes up a good deal more than rich households' (because poorer households of necessity save less). And the rich unambiguously lose through the reduced profitability of the companies they, as the shareholding class, own.

I wouldn't necessarily go mad about this: these are early days for this kind of research, and the type of DSGE model used, while the bee's knees in modern modelling circles, can be a finicky hothouse contraption. But the results are exactly what you'd have expected: rolling back anti-competitive market power is good for consumers, and for poorer consumers more than richer. I'd draw an analogy with the producer market power created by protectionism: the poorer are disproportionately affected by the higher prices of the things that are typically 'protected' most (food, clothes, shoes). And it stands to reason that the poorer will be worst hit by any anti-consumer development: they had the least choice to begin with, whereas the rich have more options.

In any event we should know a bit more in the near future: this work was part of a conference the World Bank ran last year on 'Promoting Effective Competition Policies for Shared Prosperity and Inclusive Growth', and there's apparently a conference volume on its way.

Finally a hat-tip to the Vox website, the policy portal of the Centre for Economic Policy Research, which published these results. It's a terrific compendium of timely, wide-ranging, practical research, with something to say (in readable, short format) on all the important issues of the day. Highly recommended.

Competition is good for you, part 293

The Reserve Bank of Australia came out with its latest Quarterly Bulletin the other day, and in it there was a fascinating article, "Why Has Retail Inflation Been So Low?".

The authors wanted to find out why inflation in the Aussie shops was running lower than would have been expected, given the level of the Aussie dollar, as can be seen in the graph below, where the dark blue line (inflation)  has been lagging below the pinky-purply one (the changing value of the A$).

And when they looked at it more closely they discovered an interesting thing. They disentangled what happens when exchange rates change. There are two steps: the first is the impact on the landed Aussie cost of imports (which goes up when the A$ falls and down when it rises), and the second stage is what happens to that changed landed cost of imports as it works its way through the wholesale and retail domestic distribution chain.

What they found was that the first stage hadn't changed at all: a lower A$, for example, was still feeding through to higher landed A$ costs of imports, just as it always did. But the second stage had changed quite a lot: from about 2010 onwards, there was less pass-through of those higher import costs into final consumer prices, as the graph below shows.

They weren't able to nail what had changed in the second stage using econometric methods, other than to confirm that statistical tests did indeed confirm a change in behaviour, so they had a qualitative fossick instead, based on what the RBA had been picking up from its regular programme of going round and talking to businesses ('liaison' in central bank geekspeak).

Increased competition appears to have been the reason (my emphasis added):

Liaison with retailers suggests that over the period of interest, competition in the retail sector has intensified, partly due to increased supply. There are numerous sources of this increase in competitive pressures, although some key themes have emerged from liaison.

• Technology has enabled consumers to compare retail prices quickly and easily online and determine which retailer(s) are offering the lowest prices. The increasing online presence of traditional bricks-and-mortar retailers is contributing to this effect.

• Relatedly, the supply of retailers has increased due to competition from foreign online retailers. This was particularly evident over 2010–13 when the exchange rate was relatively high...Over this period, domestic retailers became relatively less competitive against competitors based offshore.

• Both established firms and new entrants, including international retailers entering the Australian market, are competing aggressively to gain market share

They also found an interesting phenomenon where in a number of sectors, there was an especially aggressive competitor who was making life tough for the rest of the players:

In a number of market segments, liaison has attributed the increase in retail competition to the actions of a perceived ‘market leader’, which is generally looking to expand their market share, effectively increasing supply. This has led a number of retailers to report that they believe demand for their goods is very price sensitive, and fear that they will lose sales volumes if they increase prices. Earlier work on Australian retailers found that a majority of firms primarily set prices based on the balance of supply and demand factors, such as market conditions or competitors’ prices, rather than setting prices as a fixed mark-up over costs

Competition in turn was forcing firms to improve their efficiency if they wanted to maintain previous levels of profitability, pushing them to look for "labour productivity gains through technological improvements, such as contactless payments systems, self-serve checkouts and better monitoring of staffing needs" and "other means, such as bargaining for lower rents, improving inventory management, sourcing from fewer suppliers, partnering with other firms to lower distribution costs and centralising some administration tasks".

What a nice textbook outcome from increased competitive pressures: consumers have got a better deal, and producers have been pushed to improve their productivity. And it comes in a week where the latest instalment of MBIE's electricity price monitoring showed that retail electricity prices had dropped for the first time in 15 years, which MBIE said "was driven by increased discounting activity and incentive credits" - greater competition, in other words. Carl Hansen, the CEO at the Electricity Authority, said that the price fall "is one of the many indicators of strong competition in [the] residential electricity market. Another indicator is that smaller retailers have now grown their market share to 10 per cent which is putting significant pressure on the larger retailers".

It may be making a meal of the obvious, that competition is pro-consumer and pro-productivity, but the message doesn't always get through in New Zealand, or elsewhere. The lobbyists for the quiet life in sectors such as education, health and the professions are good at running the pro-producer line, and (like in bunfights over trade protectionism) the voice of the consumer doesn't get the hearing it should.

We need more competition across more markets, and you don't have to take just my word for it. The OECD, in the chapter on New Zealand in the latest update of its Economic Outlook, said that "Reducing barriers to FDI [foreign direct investment] and to competition in the electricity, transport and telecoms sectors would facilitate greater investment and innovation, increasing productivity and reducing prices". There's work to do if we're going to have the retail price and producer productivity benefits Australia is enjoying, and more of our utility bills going down.

One-way traffic - or is it?

Today's Monetary Policy Statement (here are the links to the press release, the full thing, and the webcast press conference) went much as expected - overwhelmingly, forecasters had expected the Bank to stand pat, and it did, and generally they (and the Bank) expect one more 0.25% cut somewhere down the track, assuming that the next GDP and CPI data don't spring any major surprises.

The likely track of interest rates consequently didn't get a lot of airtime at the press conference, partly because it was assumed as obvious, and partly because the media were much more concerned about other things, especially the housing market and the prospect of further potential macroprudential controls. They were also somewhat interested in various accountability issues: has the Bank failed to keep inflation high enough? Has it been communicating well enough?

I was left wondering, though, whether this blasé assumption of a bleedingly obvious track for interest rates is as well founded as people seem to think. For one thing, as the Statement said (p28), the world's an uncertain place: "the paths key variables ultimately take may differ from the projection because of changes in economic relationships, the wide range of uncertainty around key assumptions, and unforeseen developments". Economies don't always play nice with consensus forecasts, even strongly or widely held ones.

And I was also struck by this graph, where the Bank showed how interest rates would need to behave if things panned out differently - if the Kiwi dollar didn't depreciate (the green line), or if house prices kept rocking along and people started to splurge some of their winnings (the red line).

I don't think there's a person in the country that thinks interest rates could go up in the next year or eighteen months. But that's essentially the same as saying, there's a zero probability of the "spend some of our housing gain" scenario. And I don't think it's a zero probability at all: on the contrary, it sounds like an entirely possible, and entirely understandable, way that things might play out.

I wouldn't say the current consensus on interest rates has become an outright "Nonsensus, n: a belief held by a majority or large dominant proportion of a population that is nevertheless complete bollocks" (as 'Lew' wittily put it on Twitter the other day). But I would say it's on the complacent side: interest rates have departed from the script in the US, the eurozone, Japan or Australia in recent months, and they could very easily do the same here.