Did a legal ivory sale increase smuggling and poaching?

Short answer, yes. But the answer is a bit counter-intuitive.

Below is an interesting piece from the NBER Digest, September 2016 Issue.

After the experimental 2008 sale, there was a discontinuous jump in the proportion of wild elephants poached and in seizures of contraband ivory leaving Africa.

Advocates of legalizing the purchase of goods sold in black markets argue that allowing legal trade will displace illegal buying and selling, reduce criminal activity, and permit greater control of the previously illegal goods. New research indicates that this is not always the case.

In Does Legalization Reduce Black Market Activity? Evidence from a Global Ivory Experiment and Elephant Poaching Data (NBER Working Paper No. 22314), Solomon Hsiang and Nitin Sekar show that the production of black market elephant ivory expanded by an estimated 66 percent following a one-time legal sale in 2008. Seizures of contraband ivory leaving African countries also increased, from 4.8 to 8.4 seizures per country per year. The weight of ivory in the seizures increased by an average of 335 kilograms per year.

In 1989, the Convention on the International Trade of Endangered Species (CITES) banned international trade in ivory in order to protect the wild African elephant. Individual countries continued to regulate their domestic ivory trade. Poaching slowed, and elephant populations began to recover. African governments kept stockpiles of ivory harvested from animals that died naturally.

Poaching began increasing again in the mid-1990s. Following a single legal sale from stockpiles to Japan in 1999, China and Japan requested the right to make an additional purchase. After years of debate, the governments of those countries were able to purchase 62 and 45 tons of legal ivory, respectively, at auction in 2008. The governments continue to resell that ivory in their domestic markets.

After the legal sale in 1999, CITES established the Monitoring the Illegal Killing of Elephants (MIKE) program at 79 sites in 40 countries in Africa and Asia. Preliminary data collection began in mid-2002. The Proportion of Illegally Killed Elephants (PIKE) Index is the fraction of "detected elephant carcasses that were illegally killed," a measure designed to correct for fluctuating elephant populations and field worker effort.

The researchers examine how poachers responded to the 2008 sale by studying annual PIKE data from 2003 to 2013. They find a clear discontinuous increase in the index after the 2008 sale. They cannot explain this increase with changes in natural elephant mortality rates, or with economic variables such as China's or Japan's per capita GDP, Chinese or Japanese trade with elephant range countries, measures of China's physical presence in range countries, or per capita GDP in PIKE-reporting countries.

The researchers conclude that the legal sale of ivory "triggered an increase in black market ivory production by increasing consumer demand and/or reducing the cost of supplying black market ivory." Supplier costs may be reduced if legalization of a product makes it more difficult to detect and monitor illegal provision of that product. Consumer demand may rise because legalization may reduce the stigma around a previously banned product.

An interview with Deirdre McCloskey

Here is the text of a short conversation with renowned economist and economic historian Deirdre McCloskey.

A couple of interesting questions:

Gustavus: Let’s start with the million-dollar question. Does economics matter?

Professor McCloskey: Yes, alas. I would prefer to live in Eden, but as long as we don’t, we have to face up to scarcity, and that’s a big part of the lessons of economics.

Gustavus: What is the biggest problem in economics in today’s global economy? Income inequality?

McCloskey: Let me start by saying economic equality is a silly thing to want. Do you want .325 hitters for the Twins to earn the same at .150 hitters? If you have a higher IQ than I have (a good bet, by the way), should we pound nails into your head to bring us down to equality? We can’t—and largely shouldn’t—achieve equality. But we can—and should—achieve a decent income for everyone. The biggest economic problem today is not inequality, despite what you read in the newspaper. It’s the remnants of poverty. World poverty has fallen in the past 40 years—and the past 200—like a stone.

The Maori Party needs to do Econ 101

Thanks to Mark Hubbard on twitter

Perhaps Maori Party might like to read econ 101. The unintended consequences of rent controls are basic knowledge. https://t.co/YmNZYrzea3

— Mark Hubbard (@MarkHubbard33) September 5, 2016

I was alerted to this NewsHub article: Maori Party calls for immediate rent freeze.

The Maori Party is calling for a rent freeze to stop struggling families being forced onto the streets.

Co-leader Marama Fox has spent the past couple of weeks at the cross-party inquiry into homelessness, listening to hundreds of "absolutely heartbreaking" tales of how Kiwi families ended up without a roof above their heads.

"These are not people who are just desperate dropkicks. They are just struggling to meet the rent," Ms Fox told Paul Henry on Tuesday morning.

While the idea may make for a great headline, it sounds all very nice, Econ 101 tells us it would help. In fact it would make things worse.

Rent controls are just a big amount of stupid. As Swedish economist Assar Lindbeck once quipped

"next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities"

Increasing rents are just a sign that there is a problem on the supply side of the market. The question to ask is Why? And the people to ask the question of are, usually, the local (and national) government. The problem here is that the market can not adjust, largely due to local and central government interventions in the market. Prices are raising and thus we would expect the quantity supplied to increase. An increase in supply would over time reduce the excess demand in the market and thus reduce price increases.

Except this isn't happening since it's too difficult for the supply to expand in face of the constraints on land supply and building controls.

Putting rent controls in place will only make this problem worse. It will mean there is even less incentive for people to expand the housing supply. If you force the price of housing below the market equilibrium - and there is no point in rent controls if they aren't below equilibrium -  then the quantity demanded goes up and the quantity supplied goes down, relative to equilibrium, and thus the excess demand gets even larger. An excess demand that there is no incentive for people to remove because prices can not adjust.

If the Maori Party really is interested in helping the disadvantaged, rather than just producing nice sounding PR, then it should call for these people to be simply given money. Increasing their "income" so they can pay market rents and letting the market mechanism work for them is way better to deal with the problem than preventing the market from working at all.

In addition the Maori Party should be working to remove the constraints that prevent the supply of houses from growing enough to satisfy demand.

But this doesn't simply involve creating nice headlines and 60 second sound bytes so there isn't much chance of any politician being interested in doing it.

2016 Condliffe Memorial Lecture

This is the video of the 2016 Condliffe Memorial Lecture given at the University of Canterbury 4 July 2016 by Janet Currie, Henry Putnam Professor of Economics and Public Affairs at Princeton University and the Director of Princeton’s Center for Health and Well Being. The topic of the lecture was "Early Life and the Roots of Economic Inequality".

Limits of general equilibrium

In a recent EconLog piece Emily Skarbek writes,

A recent piece by Raphaële Chappe discusses the uses and limitations of general equilibrium theorizing. The post is a long-read, but Chappe briefly summarizes the point when she writes:

...the theory lacks explanatory relevance, providing instead a language through which one can say both too much and too little. The theory's abundance of riches within its own multiverse is to be contrasted with its complete neglect of some important aspects of real-world markets, such as for example the presence of increasing returns to scale, the role of institutions and their effects (including money), and the place of innovation, all of which are difficult to model within the theory.

This neglect of real-world institutions is very well illustrated by current, mainly partial-equilibrium, approach to the theory of the firm. As I have written in chapter 5 of The Theory of the Firm, the current theoretical approaches to the firm highlight a general issue to do with post-1970 microeconomics; namely, the retreat from the use of general equilibrium (GE) models. I argue,

As early as 1955 Milton Friedman was suggesting that to deal with ‘substantive hypotheses about economic phenomena’ a move away from Walrasian towards Marshallian analysis was required. When reviewing Walras’s contribution to GE, as developed in his Elements of Pure Economics, Friedman argued,

Economics not only requires a framework for organizing our ideas [which Walras provides], it requires also ideas to be organized. We need the right kind of language; we also need something to say. Substantive hypotheses
about economic phenomena of the kind that were the goal of Cournot are an essential ingredient of a fruitful and meaningful economic theory. Walras has little to contribute in this direction; for this we must turn to other economists, notably, of course, to Alfred Marshall.
(Friedman 1955: 908)

By the mid-1970s microeconomic theorists had largely turned away from Walras and back to Marshall, at least in so far as they returned to using partial equilibrium analysis to investigate economic phenomena such as strategic interaction, asymmetric information and economic institutions.

In fact to model economic institutions like the firm it is necessary to violate basic assumptions of GE theory which suggests that as it stands GE cannot deal easily with firms, or other important economic institutions. Bernard Salanié has noted that,

[...] the organization of the many institutions that govern economic relationships is entirely absent from these [GE] models. This is particularly striking in the case of firms, which are modeled as a production set. This makes the very existence of firms difficult to justify in the context of general equilibrium models, since all interactions are expected to take place through the price system in these models.
(Salanié 2005: 1)

All this would suggest that to make GE models a ubiquitous tool of microeconomic analysis – including the analysis of issues to do with non-market organisations such as the firm – developing models which can account for information asymmetries, contractual incompleteness,strategic interaction,the existence of institutions and the like is not so much desirable as essential.

One catalyst for the development of such a new approach to GE is that partial equilibrium models can obscure the importance of the theory of the firm for overall resource allocation, a point which is more easily appreciated in a GE framework.

Measuring global hunger: the importance of variances

is the title of a new column at VoxEU.org by some guy John Gibson, from some out fit called the University of Waikato. Gibson argues that different survey methodologies are typically employed to produce estimates of global hunger. His column considers some of the methodological issues that arise. Short reference periods for each household lead to overstated variances and the confounding of chronic and transient welfare components. The column goes on to present a new approach to measuring chronic hunger which tackles this sampling problem by employing an intra-year panel.

About the new approach to measuring chronic hunger Gibson writes,

In a recent paper, I propose a new way to measure chronic hunger from surveys, which accounts for excess variability from just observing a snapshot of diets (Gibson 2016). This method also can identify the transient component of hunger, which is a type of welfare fluctuation that is neglected in the literature compared to the emphasis placed on transient poverty (and a type of hunger neglected by the FAO).

The proposed method needs surveys to see the same households in at least two, non-adjacent periods in the year. This survey design is rare. Dupriez et al. (2014) survey statistics offices in 100 low- and middle-income countries to obtain metadata on their food consumption surveys and find just two that use this type of intra-year panel. Many more surveys in their sample use revisits for short, adjacent, periods (e.g. every second day) to check on diary-keeping by respondents; the median diary-keeping survey has interviewers make five visits in two weeks.

However, seeing the same household repeatedly for, say, two weeks to implement a diary is less informative than seeing it for a week, and then again for another week, six months later. Seeing the same household at two or more times of the year reveals more about outcomes with low auto-correlation since a snapshot of these mis-measures their long-run average. The benefit from repeated observations has previously been noted for incomes, expenditures, and microenterprise profits, which have low auto-correlations (McKenzie 2012), and the new results show that calories are another outcome of interest with low auto-correlations.

To get a correct estimate of annual variances from snapshot surveys, the correlations between values of a living standards indicator in separate periods for the same households are needed. These correlations are implicitly assumed to be 1.0 if short reference period survey data are treated as equivalent to annual data. If correlations are only 0.7, monthly reference period surveys overstate annual variances by 40%, and by 80% if the correlations are as low as 0.5. The correlation-based method has been found to almost exactly replicate what benchmark annual data from year-long diaries show, for variance-based statistics such as inequality and poverty indices (Gibson et al. 2003) but has not previously been used to measure hunger.

Ref.

• Gibson, J (2016) “Measuring chronic hunger from diet snapshots: Why 'bottom up' survey counts and 'top down' FAO estimates will never meet”, Working Paper 7/16, University of Waikato.

Reinhard Selten has died

Thanks to the A Fine Theorem blog I have just learnt that the economist and game theorist Reinhard Selten, a recipient of the 1994 Nobel Prize in economics, has died at the age of 85. He died August 23 in the Polish city of Poznan.

Kevin Bryan writes,

Selten’s most renowned contribution came in the idea of perfection. The concept of subgame perfection was first proposed in a German-language journal in 1965 (making it one of the rare modern economic classics inaccessible to English speakers in the original, alongside Maurice Allais’ 1953 French-language paper in Econometrica which introduces the Allais paradox).

and

In the 1965 paper, on demand inertia (paper is gated), Selten wrote a small game theoretic model to accompany the experiment, but realized there were many equilibria. The term “subgame perfect” was not introduced until 1974, also by Selten, but the idea itself is clear in the ’65 paper. He proposed that attention should focus on equilibria where, after every action, each player continues to act rationally from that point forward; that is, he proposed that in every “subgame”, or every game that could conceivably occur after some actions have been taken, equilibrium actions must remain an equilibrium. Consider predatory pricing: a firm considers lowering price below cost today to deter entry. It is a Nash equilibrium for entrants to believe the price would continue to stay low should they enter, and hence to not enter. But it is not subgame perfect: the entrant should reason that after entering, it is not worthwhile for the incumbent to continue to lose money once the entry has already occurred.

And this idea started a whole industry of finding other ways to refine Nash Equilibria.

North v's South

GDP or GDP per person may not be a perfect measure of welfare but sometimes it does tell a story.

The graph below is of GDP per person for North and South Korea, and it does tell a story about peoples' welfare. And economic systems.

The myth of neoliberalism

Colin Talbot writes on The Myth of Neoliberalism. Not everyone will agree with Talbot but his piece is worth talking a few minutes to read. And think about.

First he makes the point that,

Neoliberalism is a myth. It’s a pervasive myth on one side of politics – the left. But it is nevertheless a myth.

and he adds

Let’s start with one simple and obvious fact – no-one claims to be a neoliberal.

Which, as he says, is rather odd. I know libertarians and I know classical liberals but I'm not sure I know anyone who does claim to be a "neoliberal". I know people who have been called "neoliberal" by others but they themselves don't use the term.

Talbot goes on to note

‘Neoliberalism’ has become a term of abuse and an obstacle to serious thinking about what is, and is not, happening in politics and public policy.

and he ends by saying,

Neoliberalism is a convenient myth invented by opponents of any type of pro-market reform or political position that recognizes markets may – in the right circumstances – be a good thing. Everyone from moderate social democrats to the most lurid free-marketeers gets lumped together under a convenient ‘neoliberal’ label. I suppose it saves the bother of actually thinking, but otherwise it is not helpful.

After reading much stuff written by those who oppose "neoliberalism", I still don't know what those who use the term actually mean by it. It seems to mean different things to each user of the term. It would be better if someone could come up with a discussion of just what its characteristics are and how it differs from ideas like libertarianism and classical liberalism.

Mandating extra employee benefits comes at a cost

May be not immediately but over time they do. Tyler Cowen makes the point in an article at Bloomberg.

Most likely, there is a big difference between short-run and long-run effects. For instance, employers value the workers they have, and are reluctant to fire them when labor costs go up. A lot of “pro-worker” policies thus seem to be a kind of magical free lunch. Over time, however, as a generation of workers turns over and is replaced, mandatory benefits represent a real added cost, evaluated anew, and employers will respond accordingly. They will cut the paid dollar wage, cut other job benefits, require more hard work, automate more, or cut back on plans for growing the business. The downward-sloping demand curve is the best established empirical regularity in all of economics, and in this context that means some laborers -- maybe most laborers -- will pay a price for their new benefits, one way or another.

My 5 open questions in economics

Recently Tyler Cowen asked Adam Ozimek about the five biggest open questions are in the current economic debate.

@ModeledBehavior ...the five biggest open questions for you in current economic debate...

— tylercowen (@tylercowen) August 13, 2016

Ozimek's answer is here.

This got me thinking about what are my 5 biggest questions in current economics. Of course all such answers are idiosyncratic in that we all have our own interests and research areas in economics, but here are my 5 questions, which unsurprisingly have to do with the theory of the firm. Actually 3 of them are old questions.

1) why do firms exist?
2) what determines the boundaries of firms?
3) what determines the internal organisation of firms?

These are, of course, the 3 questions asked by Ronald Coase back in 1937 but I list them here because we still don't have really good answers to them. As Oliver Hart wrote back in 1989,

"An outsider to the field of economics would probably take it for granted that economists have a highly developed theory of the firm. After all, firms are the engines of growth of modern capitalistic economies, and so economists must surely have fairly sophisticated views of how they behave. In fact, little could be further from the truth. Most formal models of the firm are extremely rudimentary, capable only of portraying hypothetical firms that bear little relation to the complex organizations we see in the world. Furthermore, theories that attempt to incorporate real world features of corporations, partnerships and the like often lack precision and rigor, and have therefore failed, by and large, to be accepted by the theoretical mainstream.”

And while progress has been made since 1989 we still don't have a completely satisfactory theory of the firm.

But today we can add at least 2 more question to those above.

4) how and why are firms formed? This is a question about the role of the entrepreneur in the development of the firm and thus offers the opportunity for the theory of the firm to be integrated with the theory of the entrepreneur.
5) what role do firms play in the formation of markets? Market formation is another under appreciated area in economics but having a better understanding of firms will help us better understand the process of market creation.

Oil booms leave the poor in the dark

In a new column at VoxEU.org Brock Smith, Thomas McGregor and Samuel Wills make a simple but important point about poverty. That is, one of the biggest challenges in fighting poverty is to know where it is. What the authors offer in this column is a new way to measure poverty by using satellites to count people who live in darkness at night. This shows that the economic benefits of oil booms don’t trickle down to the very poor.

They argue,

Darkness lets us study whether oil booms reduce poverty and inequality.

Total lights in oil-rich countries tend to increase during oil booms. In the period 2002-2013, when the price of Brent crude rose from $20 to over $110 per barrel, illumination and GDP per capita in oil-rich countries grew by nearly one third relative to countries without oil. On average, countries that make a giant oil discovery with a net present value worth 100% of GDP see total lighting increase by almost one fifth, and GDP by 8% after ten years, compared to countries that don’t make discoveries.

But

These booms do not benefit the rural poor. All the extra light during the 2000s oil price boom came from cities and towns, in which illumination grew by 15% and 38%, respectively. The share of people living in darkness stayed the same. New lights did not turn on, and the poor did not move for better opportunities elsewhere. Giant oil discoveries show the same effect. In these cases lighting in towns and cities grew by 15% and 22% respectively after 10 years, but did not cause any lights to be switched on in rural areas. There is some evidence, though, that oil discoveries prompted around 1% of the rural poor to move to towns.

I do wonder if support for governments in many oil rich countries is concentrated in towns and cities and thus those governments focus the benefits of oil on their supporters in towns and cities.

A letter to incoming students at the University of Chicago

"Once here you will discover that one of the University of Chicago’s defining characteristics is our commitment to freedom of inquiry and expression. … Members of our community are encouraged to speak, write, listen, challenge, and learn, without fear of censorship. Civility and mutual respect are vital to all of us, and freedom of expression does not mean the freedom to harass or threaten others. You will find that we expect members of our community to be engaged in rigorous debate, discussion, and even disagreement. At times this may challenge you and even cause discomfort."

and

"Our commitment to academic freedom means that we do not support so called ‘trigger warnings,’ we do not cancel invited speakers because their topics might prove controversial, and we do not condone the creation of intellectual ‘safe spaces’ where individuals can retreat from ideas and perspectives at odds with their own."

The gains from trade go mainly to ....

the poor. This is the conclusion of a new paper in the Quarterly Journal of Economics (Volume 131 Issue 3 August 2016). The basic reason for this being that the poor tend to concentrate their spending on good and services from the traded sectors of the economy.

The abstract of the paper, Measuring the Unequal Gains from Trade by Pablo D. Fajgelbaum and Amit K. Khandelwal, reads:

Individuals that consume different baskets of goods are differentially affected by relative price changes caused by international trade. We develop a methodology to measure the unequal gains from trade across consumers within countries. The approach requires data on aggregate expenditures and parameters estimated from a nonhomothetic gravity equation. We find that trade typically favors the poor, who concentrate spending in more traded sectors.

So another reason for being pro international trade.

Are markets efficient?

In this audio from the Chicago Booth Review Eugene Fama and Richard Thaler discuss this question. A fun and interesting discussion on issues like market efficiency, bubbles and behavioural economics.

Some non-shocking statistics on gender pay from the IFS

At the IEA blog Ryan Bourne writes,

‘On average, women in paid work receive about 18% less per hour than men’. So reads the opening line of an Institute for Fiscal Studies–Joseph Rowntree Foundation press release for a new briefing note today.

Here we go again. It’s a shame that another two high-profile organisations are propagating this. As we argued in last week’s ‘How much do you earn?’ paper, these aggregate statistics are largely meaningless and designed to create a sense of unfairness. Are these workers full time or part time? In the public or private sector? How many years’ experience? The education level of the workers? What type of roles? What is the age profile of the workers? And what about all those compensating differentials which we know are important?

This is not merely theoretical, because using these stats as a catalyst to force pay to be equal for work which the market rates unequally produces damaging distortions in the economy.

But taken with all these caveats, the IFS report helpfully provides us with some facts which are pretty intuitive:
1) The gender wage gap per hour is falling (down from 28 per cent to 18 per cent between 1993 and 2015), which we’d expect given educational and societal trends. Though it must be said, this is not based on the ONS’s preferred definition of the pay gap, or their preferred data source.
2) The wage gap between young men and women, where you’d expect societal and educational trends to bite most, is just 6 per cent (before you even control for any of the points above).
3) The wage gap prior to having children is much lower at 10 per cent than the overall average wage gap, suggesting that having children is a big contributory factor.
4) Indeed, following the arrival of the first child, the wage gap steadily increases, on average, to 33 per cent after 12 years.
5) Why is this? A big clue is that 20 years after the birth of their first child, women have on average been in paid work for four years less than men and have spent nine years less in paid work of more than 20 hours per week.

A lot of research now tell us that points 4 and 5 are some of the most important reasons for the male/female wage gap.

In a paper, "A grand gender convergence: its last chapter" by Claudia Goldin in the American Economic Review (104(4): 1091-1119),  it is argued that reducing the gender gap in pay requires greater temporal flexibility, to help counter points 4 and 5, in the labour market. Being able to work long hours and work particular, antisocial hours is limited by childcare responsibilities. This effects women more than men and thus changes to the structure of labour markets with regard to hours worked and remuneration will advantage women to a greater degree than men.

The abstract of the paper reads,

The converging roles of men and women are among the grandest advances in society and the economy in the last century. These aspects of the grand gender convergence are figurative chapters in a history of gender roles. But what must the "last" chapter contain for there to be equality in the labor market? The answer may come as a surprise. The solution does not (necessarily) have to involve government intervention and it need not make men more responsible in the home (although that wouldn't hurt). But it must involve changes in the labor market, especially how jobs are structured and remunerated to enhance temporal flexibility. The gender gap in pay would be considerably reduced and might vanish altogether if firms did not have an incentive to disproportionately reward individuals who labored long hours and worked particular hours. Such change has taken off in various sectors, such as technology, science, and health, but is less apparent in the corporate, financial, and legal worlds.

But presumably firms reward individuals who labour long hours and work particular hours because it is profit maximising for them to do so and thus this may be a feature of the particular industries in which it occurs. If so this could be a difficult thing to change, it would take either a change in the cost structure of the industry, what would bring about such a change?, or a change on the demand side, that is, customers would have to start demanding a different set of goods or services. Why would they do so?

Errata section added

Sadly the webpage for my favourite theory of the firm book has had to have a section on errata added to it.

Yes I've already come across errors in the book, some due to the publisher but also some, more embarrassingly, due to me! I guess I should have checked things more thoroughly. There are three things you must do when writing a book; proofread, proofread, proofread.

Matt Ridley on the fate of economic libertarianism

Matt Ridley sums up the current state of economic liberalism in just a few words:

It is the same around the world. Economic liberty is out of fashion. There is almost no country trying the sort of free-market reforms – tax cuts, deregulation, privatisation – that so many countries achieved in the 1980s and 1990s. China and Russia, liberalised briefly in the late twentieth century, seem to be heading back to Big Brother. Brazil has seen its market reforms congeal into crony-corporatism. India and Japan are hardly paragons of small-government economic liberalism. Even here in Britain, I doubt Theresa May took Hayek’s “Road to Serfdom” to Switzerland as holiday reading.

Sad but true, just think of the case of New Zealand. The days of Rogernomics are long gone if this current government (or opposition) is anything to go by. I don't see the likes John Key, Gerry Brownlee or Andrew Little sitting up in bed reading The Wealth of Nations or The Constitution of Liberty.

But why is liberalism out of favour?

Unlike welfare-socialism and crony-capitalism, it fails to create vested interests dependent on its subsidies. The whole point of running for president [or Prime Minister] is to be able to hand other people’s money to your favourite causes and generate grateful patronage. Laissez-faire robs you of that treat.

Anything that stops politicians from bribing some of the people with some other people's money will not go down well with either the politicians or those who, gratefully, receive the largess.

It does exist!

A specimen of the once thought only mythical beast has been spotted in the wild, well on my desk anyway,

The only known example of this rare creature outside of captivity in the UK was sighted this afternoon. And unlike the Loch Ness Monster this picture is real!

The Big Mac index 2016

From the Economist magazine comes the 2016 Big Mac Index:

While it is not shown in the graphic above if you look at the more detailed version of the raw index you find that the New Zealand dollar is undervalued by 16.2% when compared to the US dollar but is overvalued by 7.1% when compared to Sterling. Adjust for GDP per person and the New Zealand dollar is undervalued by 1.1% when the base currency is the US dollar compared to being overvalued by 14.1% when the base currency is Sterling.