Economic Research and Data

Economic Review

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1999 Quarter 1 | Vol. 35, No. 1


The Effects of Vertical Integration on Competing Input Suppliers
by R. Preston McAfee

When a downstream firm buys an input supplier, it can reduce its costs of using that input. Other input suppliers typically respond by pricing more aggressively, given the demand reduction, which tends to lower input supply costs to other firms. Thus, a vertical merger may lower rivals' costs instead of raising them.

PDF file 131K

Banking Consolidation and Correspondent Banking
by William P. Osterberg and James B. Thomson

Banking consolidation, spurred on by interstate branching deregulation, is changing the competitive structure of banking markets. Policymakers and regulators have focused on the implications of the ongoing consolidation for customers of banks in retail and wholesale markets. Little attention, however, has been paid to the impact of interstate consolidation on correspondent banking markets-those markets where banks buy and sell inputs used to produce banking services. By studying the era of intrastate branching deregulation, the authors provide some insights on the implications of interstate branching for correspondent banking.

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1999 Quarter 2 | Vol. 35, No. 2



The Third Industrial Revolution: Technology, Productivity, and Income Equality
by Jeremy Greenwood

The author examines periods of rapid technological change for coincidences of widening inequality and slowing productivity growth. He contends that while in the short run the introduction of technologies offers profits to investors and premiums for skilled workers, in the long run the rising tide of technological change lifts everybody's boat.

PDF file 282K

Accounting for Capital Consumption and Technological Progress
by Michael Gort and Peter Rupert

Methods currently used to calculate capital consumption, the capital stock, and the sources of economic growth do not adequately measure the underlying growth in inputs due to technological advance. This lack affects tax policy as well as programs targeting potential areas of economic growth. The authors present a model designed to surmount the deficiencies of current calculation methods.

PDF file 108K

Defining Capital in Growth Models
by Michael Gort, Saqib Jafarey, and Peter Rupert

The authors analyze the measurement of the capital stock when technological advance is embodied in capital. The source of the problem is that capital is not homogeneous across vintages. Which measure of the capital stock to use is dictated by the question being addressed.

PDF file 102K

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1999 Quarter 3 | Vol. 35, No. 3



Term Structure Economics from A to B
by Joseph G. Haubrich

The interest rates for bonds of different maturities are related, but the interplay of factors that influence these rates is not easy to tease apart. The author leads the reader through the development of a model of the term structure of interest rates, then works with the model to provide some insights into the interplay of factors, especially the effect of uncertainty on interest rates. His analysis shows how a common simplification known as the expectations hypothesisobscures the significant contribution that uncertainty can make to the determination of interest rates.

PDF file 143K

Depositor-Preference Laws and the Cost of Debt Capital
by William P. Osterberg and James B. Thomson

Under depositor-preference laws, depositors' claims on the assets of failed depository institutions are senior to unsecured general-creditor claims. As a result, depositor preference changes the capital structure of banks and thrifts, thereby affecting the cost of capital for depositories. Depositor preference has no impact on the total value of banks and thrifts, however, unless deposit insurance is mispriced.

PDF file 143K

Household Production and Development
by Stephen L. Parente, Richard Rogerson, and Randall Wright

The authors introduce home production into the neoclassical growth model and examine its consequences for development economics, focusing on how differences in policies that distort capital accumulation explain international income differences. In models with home produc-tion, such policies not only reduce capital accumulation, they also change the mix of market and nonmarket activity; therefore, for a given policy differential, these models generate larger differences in output than standard models. Policy differences' (hence market income differences') welfare implications change when the model explicitly incorporates home production.

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1999 Quarter 4 | Vol. 35, No. 4



Effects of Movements in Equities Prices on M2 Demand
by John B. Carlson and Jeffrey C. Schwarz

Large swings in stock prices are sometimes associated with a redirection of household savings flows. Such changes can lead to transitory increases in M2 as investors temporarily "park" funds in depository assets while they determine the funds' ultimate destination. The authors find that, although stock price changes are statistically significant as an explanation for M2 growth, they do not account for much of M2's recent strength.

PDF file 135K

Population Aging and Fiscal Policy in Europe and the United States
by Jagadeesh Gokhale and Bernd Raffelhüschen

The authors report each country's total intertemporal public liability as the sum of its explicit outstanding debt and the present value of its implicit liabilities-the excess of projected transfers and government purchases over tax revenues. They find rapid, persistent population aging in almost every European country. They also calculate that for European countries with the highest implicit liabilities, eliminating total intertemporal liabilities would require tax revenue increases exceeding 4 percent of GDP. Compared to Europe, the future challenges of population aging and fiscal problems in the United States seem far more benign.

NOTE: This version has been revised since publication to correct for errors in calculations which appeared on page 14 of the published version.

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