A Visa/MasterCard theory of recessions

Statistical agencies use the data logger who walk up and down the aisles to collect sticker price like frozen French fries and a bicycle laptops. They collected data are combined into one index, and passed on to who uses it as a basis for changes in interest rates the central bank governors decided. It looks very simple, but if the source material has been damaged what will happen? Perhaps the central bank will react only shadow on the wall?

The following is the price likely to deteriorate. Starting with the United States and Canada payment system. For each credit card payments, the cost of North American businessmen have to pay card networks Visa and MasterCard 1-2%. Retailers in both countries to deal with this burden very different strategies. In the US, retailers are allowed to request them to pay an additional fee for each credit card payments, in order to offload network costs passed on to customers. Because Canada prohibit retailers from surcharging customers, they are marked in each price by two percent of their store, they collected enough to pay an additional deposit reaction card network charges. (Canadian retailers almost no cash discount.) A more complete description, see here.

It has led to changes in the price of different payment habits of this mysterious differences vastly different monetary policy, and economic growth in North America coupled solution potential.

Visa and MasterCard networks consider when decided to offer North American customers a universal 5% cash back rewards what happens. The network by requiring businesses to submit a 5% transaction fee per card funds the prize. US retailers respond by increasing the surcharge they levy on each card transaction applies to about 5%, forcing the card to pay the costs to be borne by the customer. Namely those Americans who use cash to pay the bill continue to be the price, it remains unchanged. If you can not surcharge the ability to respond by Canadian retailers increased by 5% of the retail price, thus indirectly transfer cash back rewards costs to customers.

Marching up and down the aisle, the United States price collectorsdon't noticed things. As a result, the US consumer price index remained unchanged, while the Fed did not understand except thumb. CANADA Price collectors, however, found that prices have risen. Upon receipt of these data, the Bank of Canada to raise interest rates anxiously. This is because the bank officials believe that the rapid rise in the price level indicate that the rate of return of economic range (natural rate) rises above the bank's market rate, the breeding of inflation. The rate hike is necessary, so that the two interest rates back lane, thereby blocking the initial stage of inflation, which seems to be developing countries. Natural rate has not budged, of course. All of this change is that the card networks' pricing policy. On the contrary, the natural rate of unemployment lines bring market interest rates, the Bank of Canada is fooled into motion the natural rate of unemployment is higher than the market interest rates.

If the card network to add cash back rewards, say 10%, the price in Canada will rise even more. US prices were flat. The new policy of the Bank of Canada cash back again to confuse the impact of the rise in the natural rate, the Fed kept tightening pat.

Suppose the price of the bank's policy fast, smooth response, Canada austerity will only drive consumer prices down, restore equality between the market rate and the natural rate of interest so the bank. However, the impact of changes in monetary policy if the real economy, then we have a problem. This may be because some sticky prices decline, so the market can not clear, the result is an inventory of goods will be unsold. Or maybe the fact that nominal debt denominated create a Fisher debt deflation. If so, then the Bank of Canada may end up unnecessarily push Canada into a recession. US Federal Reserve Board, responded very same set of stimuli, it is not.

Now of course I exaggerate things. In real life, such a substantial increase in cash back policy is unlikely. However, we have seen a gradual increase in network costs over the years, there may be enough to stimulate the Canadian retailers ascribed sticker price. As a result, CPI may be slightly higher than the Canadian explain the actual inflation. In the United States, given that the US retailer has only recently gained power credit card surcharges. Since the launch of US retailers charging policy, lower price tag, CPI will be forced down. This is likely to deceive the Fed officials believe the US economy is slowing, and drawn into unnecessary realtiy all changed when interest rates credit card pricing practices. People want to know, if the monetary authorities take into account our payment system, these mysterious function, their monetary policy.

This answers a question that I asked more than a year ago.

0 Response to "A Visa/MasterCard theory of recessions"

Post a Comment