Economic Research and Data

1998 Economic Commentary

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Subordinated Debt: Tough Love for Banks? top
by Joseph G. Haubrich
December, 1998

People who think banks could use some market discipline have proposed that subordinated debt could provide it. Are their proposals likely to succeed?

Full Text 26K in PDF

Social Security's Treatment of Postwar Generations top
by Jagadeesh Gokhale
November, 1998

Social Security's long-term funding gap is wider than what is officially reported or commonly perceived. Furthermore, the program's tax treatment of distinct groups varies considerably among postwar generations: Women, whites, and the college educated have lower lifetime net tax rates than do men, non-whites, and those without a college education. Among income groups, the middle class faces the highest lifetime net tax rate. Social Security also provides much lower, riskier rates of return on past contributions than alternative investment opportunities could yield.

Full Text 44K in PDF

Is the Current-Account Deficit Sustainable? top
by Owen F. Humpage
October 15, 1998

The U.S. current-account deficit for 1998 will break all records, adding still more to our international indebtedness. Our persistent shortfalls imply neither profligacy nor an unstable economic situation. On the contrary, foreign borrowing has enhanced our economic well-being. As our debt burdens mount, however, so does the potential for an abrupt market correction.

Full Text 77K in PDF

Currency: Time for Change? top
by Paul W. Bauer
October 1, 1998

Despite the increasing usage of credit and debit cards and the emergence of various electronic payment instruments, currency remains king - at least for small-dollar-value transactions. Maintaining the quality of Federal Reserve notes in circulation represents the single largest expenditure by Reserve Banks. This Economic Commentary examines the Federal Reserve's current role in the provision of currency and explores the challenges and opportunities in developing forward-looking currency policies.

Full Text 31K in PDF

What Fiscal Surplus? top
by Jagadeesh Gokhale
September 15, 1998

Proposals to shore up Social Security using future budget surpluses neglect to mention that Social Security itself produces these surpluses. Moreover, the projected surpluses are dwarfed by Social Security's present shortfall of $7 trillion-$10 trillion, which represents the excess of benefits that living adults will receive over their payroll taxes. This shortfall constitutes a net addition to living adults' wealth, and may have encouraged greater current consumption, lowered national saving, and widened U.S. trade deficits.

Full Text 77K in PDF

Bank Notes and Stored-Value Cards: Stepping Lightly into the Past top
by William P. Osterberg and James B. Thomson
September 1, 1998

Like the bank notes that circulated in this country from 1863 to 1913, stored-value cards substitute the liabilities of private banks for government and central-bank liabilities. This shift may have important implications for the federal budget, the money supply, and monetary policy.

Full Text 33K in PDF

Global ATM Banking: Casting the Net? top
by John D. Hueter and Ben R. Craig
August 15, 1998

Both the ACH and ATM systems are examples of networks, where the benefits of one participant enhances the value of the structure for the other participants. Networks are difficult to analyze, but some recent results from economic theory suggest that competitive networks are preferable in a social sense to monopoly networks.

Full Text 85K in PDF

Measuring Pricing Bias in Mortgages top
by Stanley D. Longhofer
August 1, 1998

Detecting and measuring discrimination in the pricing of mortgage loans present unique challenges for bank regulators. This Economic Commentary outlines how loans are priced in the mortgage market and the difficulties involved in comparing the prices charged to different borrowers.

Full Text 28K in PDF

Productivity Gains During Business Cycles: What's Normal? top
by Mark E. Schweitzer 
July, 1998

Economic analysts yearn for a means of predicting labor productivity growth. Can they get some help from business cycle patterns?

Full Text 73K in PDF

Productivity Measures and the "New Economy" top
by John B. Carlson and Mark E. Schweitzer
June 1998

The U.S. economy's extraordinary performance in recent years has led many observers to claim we are witnessing a "New Economy," in which trend output growth has accelerated to a much higher rate than any we have experienced over the past quarter century. They also argue that measurement problems have masked the signs of productivity's acceleration. We find scant evidence to support such claims.

Full Text 77K in PDF

Government-Subsidized Training: A Plan for Prosperity? top
by Charles T. Carlstrom and Christy D. Rollow
May 15, 1998

Analysts often maintain that without government subsidies, worker training in the United States is insufficient. But is it possible that firms' incentives are already in synch with the social costs and benefits of training? 

Full Text 47K in PDF

In Search of the NAIRU top
by David Altig and Paul Gomme
May 1, 1998

What do dating and Brad Pitt tell us about unemployment?

Full Text 27K in PDFDF

Generational Equity and Sustainability in U.S. Fiscal Policy
byJagadeesh Gokhale
April 15, 1998

U.S. policy is not evenhanded in its tax treatment of older, younger, and future generations. If living generations are taxed according to current policy until they die, they will give up 28.6 percent of their lifetime labor income. But if government spending goes as projected, future generations will give up almost half their lifetime labor income to balance the government's books. This indicates that current policy cannot be sustained indefinitely. The size and timing of the required changes are reported here. Postponing them is likely to prove costly.

Full Text 137K in PDF

Private Money: Everything Old is New Again top
by Barbara A. Good
April 1, 1998

Private money systems have existed in this country for 200 years or more. Wherever they are used, they must solve problems similar to those confronting innovative electronic money systems. This Economic Commentary suggests that the high-tech newcomers could benefit from the experience of the low-tech veterans.

Full Text 82K in PDF

What Happened to the Inventory Overhang? top
by Terry J. Fitzgerald and Jennifer K. Ransom
March 15, 1998

The large inventory buildup during the first half of last year caused the media to warn that firms would respond to the "excessive" pileup by cutting back production, thereby leading to a substantially weaker economy by year's end. Instead, real output expanded at a healthy 3.3 percent annual rate in the last half. So what happened?

Full Text 60K in PDF

Gold Prices top
by Joseph G. Haubrich
March 1, 1998

Long after disappearing from our coinage, gold continues to command attention as a substance whose price foretells stability or inflation - and to retain a singular position on the balance sheets of central banks.

Full Text 69K in PDF

Network Externalities: The Catch-22 of Retail Payments Innovations top
by William P. Osterberg and James B. Thomson
February 15, 1998

Why aren't more consumers replacing cash and checks with electronic innovations like stored-value cards? This Economic Commentary focuses on one of the reasons: A consumer's benefits from having a card depend on how many businesses will take it in payment. However, merchants will refuse to invest in the systems needed to accept the cards until they are sure there will be enough consumer demand to justify the expense. This interdependency of demand will remain an obstacle until the innovation achieves critical mass, either in its own time or with policymakers' help.

Full Text 168K in PDF

Canada's Money Targeting Experiment top
by Paul Gomme
February 1, 1998

Historical relationships between money growth and inflation suggest that controlling money growth should tame inflation. In the mid-1970s, the Bank of Canada targeted M1 growth, yet inflation continued. What went wrong?

Full Text 76K in PDF

Assessing Fundamental Tax Reform top
by David Altig, Alan J. Auerbach, Laurence J. Kotlikoff, Kent A. Smetters, and Jan Walliser 
January 15, 1998

President Clinton recently stated that he would consider legislation aimed at simplifying the U.S. tax code if it were fiscally responsible, fair to all Americans, good for the economy, and truly created a simpler tax system. This article looks at how some basic tax reform proposals - including the flat tax and an alternative known as the X tax - stack up against these sometimes competing criteria.

Full Text 33K in PDF

A Hitchhiker's Guide to Understanding Exchange Rates top
by Owen F. Humpage
January 1, 1998

To understand the behavior of exchange rates, it is often useful to view them as consisting of two parts - a real exchange rate and a component reflecting domestic and foreign inflation differentials. Most important, however, is an appreciation of the crucial role that expectations play.

Full Text 70K in PDF

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