Daylight Savings Time and Nominal Shocks

Nick Rowe has an excellent and timely post on DST and monetary policy:

Metrification was a nominal change that had negiligible real effects, as far as I know. Daylight Savings Time is a nominal change that has real effects. Some monetary changes, like currency reforms where we knock a couple of zeroes off the old currency and call it the new currency, are like metrification, where nothing real changes. And maybe all monetary changes are like metrification in the long run. But some monetary changes are like Daylight savings Time, and have real effects, at least in the short run.

If we understood Daylight Savings Time better, and how it works, we might understand monetary policy better.

Indeed, Nick makes some progress (slightly technical) on this question, read the whole thing for more.

Comments

Perhaps the study of China may help. On page 215 of the book River Town, Peter Hessler writes

"[Xinjiang] was a vague place - even time was uncertain here. All of China is on one time zone, which meant that in Xinjiang the sun didn't rise until eight or nine o'clock and it set after ten at night. Most of the people followed a more practical schedule, based on a mythical local time zone that was two hours later than the one in Beijing, but all of the government offices and state-run transportation followed the official standard time. It was the perfect of the divide between the government and the governed, both of them living in the same place but going about their separate routines a full two hours apart."

I could handle the formulae in the article, Nash equilibrium and all that, but all the rigor and complexity seems a bit silly when the topic is misspelled.

DST is not a "nominal" change. It is a real change. It changes the timing between the sun's rise/set and when people wake up, go to work, and go to sleep.

I guess maybe DST seems like a nominal change if you spend your whole life indoors outside of the sun's light?

Just like in the real world, there is a "menu cost" causing nominal rigidities. In order for the nominal change to have no real change, everyone would have to alter their "menu prices" to reflect the nominal change. In this case, that would mean every store changing its nominal hours of operation. The store once open from 9am-9pm would have to change its sign to 8am-8pm. Websites, company policy, advertisements, etc. would all have to change. There would be a physical cost as well as the risk of confusion, and things could get really confusing if different firms made different decisions.

In economics, increasing nominal prices very rarely go down, so it makes sense to (eventually) absorb the menu costs. But here, we all know that in a few months, it'll shift back (and shift again in the future). yes, I suppose every company could have two sets of time "menus" (ie, two sets of "store hours" signs) that they rotate between, but its not hard to see how the decision to make the real change became the NE.

"Do people stay up later in the summer, and go to bed with the sun in the winter? No."

You've obviously never lived in Scandinavia.

Nylund:

You seem to have got your head around this.

Menu costs. I was thinking of talking about menu costs at the end of my post, but couldn't quite get my head clear, so decided to end the post right there.

Here's the problem with menu costs. If I lived and worked alone, but still kept a schedule for some reason, I might have a cost of changing my schedule (menu costs). But I think I would totally ignore DST.

It's when I live and work with others, and we would all have to coordinate a change in our schedules, that DST will have real effects.

It's not the cost of changing schedules (menu costs). It's the cost of coordinating a change in our schedules. Which isn't quite the same as menu costs.

But I can't quite get my head clear on this. What does the Loss function look like?

Alex: right. yes. It's almost like the government saying "We suggest that everyone change their prices at midnight by 10%", while holding the money supply (the sun) constant, and everyone does it because they expect everyone else to do it.

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Remember, the Indiana study was of a rural area on the extreme western edge of the eastern time zone.

I'm waiting to see a comparable study of what happens in an urban area more in the center or eastern part of a time zone.

spencer - Indianapolis is a million people. Is that not urban enough for you?

There is only one 'S' in Daylight SAVING Time.

The thread is buried, but I want to respond to the last comment by J Thomas, which is a good one and which I mostly agree with.

The US military has tried to use UTC (or GMT), which it calls "Zulu Time". However, in practice the army at least winds up using "local time", the only effect of the attempt to use UTC being that it is specified as such in formal documents.

Culturally, the habit of viewing noon as the time when the sun is highest is really, really, ingrained. So I don't see the time zone kludge being undone at all in our lifetimes. What may happen is that the system starts acquiring additional kludges, like DST, until it collapses under their weight.

And the 9 to 5 business day has become almost as ingrained. I think people who run businesses like them to be opened when they know other local businesses will be opened, even though this is to a large extent self defeating for retail and other providers of consumer services.

If we agreed to all use GMT the practical adjustment would not be difficult. But I think you would get "virtual time zones" created by businesses keeping their operating hours but just translating them to GMT. So a business would be open between 2 PM and 10 PM in New York, and 4 PM and 12 AM in Denver, and schedules would adjust. But someone travelling between New York and Denver would need to do more to learn the local schedule than just moving his watch ahead by two hours.

So culturally this would be really difficult to do. The real day runs roughly between 7 and 7, not 12 and 12, and good luck getting that out of people's heads.

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