Economic Research and Data

1999 Economic Commentary

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The Exchange Stabilization Fund: How It Works top
by William P. Osterberg and James B. Thomson
December 1999

Increasingly controversial, the Exchange Stabilization Fund is used to influence the international value of the U.S. dollar and to provide aid to foreign countries. The debate surrounding the Fund will become more informed, suggest the authors, when observers understand how to calculate the total amount of resources available to the Fund. This Economic Commentary explains how the ESF's balance sheet figures must be adjusted to produce an accurate account of those resources.

Full Text 123K in PDF

Forecasts and Sunspots: Looking Back for a Better Future top
by Charles T. Carlstrom and Timothy S. Fuerst
November 1999

To head off inflation before it gets started, central banks must use forecasts. But using forecasts to determine monetary policy actions introduces the possibility that inflation will increase just because the public expects it to. This Economic Commentary explains how random events-sunspots-can affect economic systems and lead to volatility in prices. The authors suggest that sunspots can be avoided with an approach that responds predominantly to past, rather than predicted, inflation.

Full Text 92K in PDF

Are We in a Productivity Boom? Evidence from Multifactor Productivity Growth top
by Paul W. Bauer
October 15, 1999

Increased productivity could be the key to preserving robust, noninflationary GDP growth. But what is the best measure of productivity? This Economic Commentary explores the relationship between labor productivity and multifactor productivity, a measure that accounts for factors other than technological improvement. It concludes that MFP provides a better measure of productivity due solely to technical change.

Full Text 34K in PDF

Financial Crises and Market Regulation top
by Jerry L. Jordan
October 1, 1999

Financial crises typically arise from risk mismanagement by governments. Usually with the most sincere and honorable of intentions, governments seek to reduce or eliminate the exposure to risk of some constituent. But risk cannot be eliminated, it can only be redistributed. Jerry L. Jordan, president and chief executive officer of the Federal Reserve Bank of Cleveland, recently discussed this problem when he spoke at the Eighth Annual Financial Markets Conference sponsored by the Federal Reserve Bank of Atlanta. This Economic Commentary is adapted from his remarks.

Full Text 27K in PDF

Dollarization and Monetary Sovereignty: The Case of Argentina top
by David Altig and Owen F. Humpage
September 15, 1999

In January, President Menem of Argentina proposed strengthening his country's commitment to monetary stability by replacing the peso with the U.S. dollar. Dollarization leaves Argentina without a lender of last resort, but the Federal Reserve's current operating procedure, together with existing Argentine arrangements, mitigates this drawback.

Full Text 26K in PDF

Growth and the Internet: Surfing to Prosperity? top
by David Altig and Peter Rupert
September 1, 1999

Do countries that inhibit the quick integration of new technologies pay a price in slower economic growth? This Economic Commentary suggests they do. Focusing on the level of Internet use as an indicator of the absorption rate of emerging computer technologies, the authors argue for the view that faster technology absorption leads to increased economic growth.

Full Text 42K in PDF

The Recent Ascent in Stock Prices: How Exuberant Are You? top
by John B. Carlson
August 15, 1999

Stock prices have soared in the last few years, and the debate between those who claim that investors are paying too much and those who believe stocks are worth even more continues unabated. Because stock prices are determined by people's perceptions of their worth, and these, in turn, are based on their predictions for the future, the possibility that expectations will exceed reality always exists. While we cannot know for certain whether the market is over- or undervalued, we can clarify the factors that determine stock prices and discover the assumptions which underly our expectations. Assessing the consistency of our assumptions may keep our exuberance in check.

Full Text 51K in PDF

Money Growth and Inflation: How Long is the Long-Run? top
by Terry J. Fitzgerald
August 1, 1999

In their efforts to maintain low inflation, policymakers currently pay relatively little attention to the growth rate of the money supply. Yet many studies have found a close relationship between money growth and inflation, at least in the long run. But how long must money growth be strong before it should be of concern to policymakers? That is, what is the shortest period of time over which money growth seems to be reliably associated with inflation?

Full Text 131K in PDF

Resisting Electronic Payment Systems: Burning Down the House? top
by Ben Craig
July 1999

Electronic innovations such as smart cards can significantly reduce the cost of payment transactions and increase their accuracy and efficiency-but only if people use them. This Economic Commentary explores path dependence as a cause of the difficulty in adopting new payment system technologies, even when their advantages are apparent.

Full Text 51K in PDF

Measuring Total Employment: Are a Few Million Workers Important? top
by Mark Schweitzer and Jennifer Ransom
June 1999

How can we measure total employment in the economy? The Bureau of Labor Statistics provides two different-and sometimes contradictory-measures of this key indicator. During the 1990s, the gap between the two measures has widened to more than five million workers. This Economic Commentary examines the current discrepancy between the two measures of employment and explores its significance in interpreting our economy's health.

Full Text 82K in PDF

Mortgage Brokers and Fair Lending top
by Stanley D. Longhofer and Paul S. Calem
May 15, 1999

Mortgage brokers play an important role in the housing-finance market, but they also present unique challenges to regulators attempting to enforce fair-lending laws. Should lenders be held responsible for the pricing decisions of brokers from whom they receive loan applications, or should fair-lending laws instead be applied directly to the brokers themselves?

Full Text 32K in PDF

The Truth about Hedge Funds top
by William P. Osterberg and James B. Thomson
May 1, 1999

Do hedge funds help or hurt the financial markets in which they operate? The highly publicized troubles of Long Term Capital Management have once again focused the attention of policymakers and the press on the hedge fund industry and the cry for its regulation. This Economic Commentary refutes some of the commonly held myths about hedge funds and examines the rationale for their regulation.

Full Text 86K in PDF

Money Growth and Inflation: Does Fiscal Policy Matter? top
by Charles T. Carlstrom and Timothy S. Fuerst
April 15, 1999

Is inflation "always and everywhere a monetary phenomenon," as Milton Friedman postulates in his famous dictum? Some say no, arguing instead that inflation is not the sole province of the central bank, but is also controlled by the fiscal authority. This Economic Commentary explores this argument, known as the fiscal theory of the price level.

Full Text 51K in PDF

Fixing Social Security: Is the Surplus the Solution? top
by David E. Altig and Jagadeesh Gokhale
April 1, 1999

It may seem an attractive proposal-the Administration's plan of using projected budget surpluses to restore Social Security's finances-but it obscures the real trade-off we face in tackling this problem. The proposal is essentially a change in the accounting treatment of surpluses, deficits, and debt held by the public and in the Social Security Trust Fund. It would in no way alter the fundamental imbalance that afflicts the nation's most basic pension program.

Full Text 26K in PDF

The Challenge of Stability: Mexico's Pursuit of Sound Money top
by Jerry L. Jordan
March 15, 1999

How can Mexico best achieve a stable standard of value and, hence, sound money? Jerry L. Jordan, president and chief executive officer of the Federal Reserve Bank of Cleveland, explored this question in his address to the DUXX Graduate School of Business Leadership at its Forum on Public Policy in Monterrey, Mexico. This Economic Commentary is adapted from his remarks.

Full Text 35K in PDF

How Much of Economic Growth Is Fueled by Investment-Specific Technological Progress? top
by Michael Gort, Jeremy Greenwood, and Peter Rupert
March 1, 1999

Discovering how economies grow is vitally important for economists and policymakers alike. This Commentary shows that more than half of U.S. economic growth can be attributed to technological advance in equipment and structures.

Full Text 101K in PDF

Construction and Monetary Policy: A View from the Sidelines top
by Sandra Pianalto
February 15, 1999

On January 27, Sandra Pianalto, first vice president and chief operating officer of the Federal Reserve Bank of Cleveland, spoke at the annual forecast dinner held by the Home Builders' Association of Greater Akron. This Economic Commentary is adapted from her remarks.

Full Text 31K in PDF

Will Increasing the Minimum Wage Help the Poor? top
by David Neumark, Mark Schweitzer, and William Wascher
February 1, 1999

If enacted, the Fair Minimum Wage Act of 1999 would raise the minimum wage an additional dollar over the next two years. But does the minimum wage really benefit the low-income families it purports to help?

Full Text 62K in PDF

Bringing the Unbanked Onboard top
by Barbara A. Good
January 15, 1999

Changes in government policy have required a new look at how the unbanked population can be served by both traditional and nontraditional financial institutions. In this regard, banks must continue to gear products and services around the needs and concerns of this substantial market segment in order to win these potential customers over.

Full Text 32K in PDF

The Euro top
by Ed Stevens
January 1, 1999

In January 1999, the new European Central Bank began manufacturing a new money-the euro-by taking over the operations of 11 European nations' monetary systems. This Commentary outlines ECB institutions and operations and provides a brief introduction to some of the political economy issues facing the new central banking arrangement.

Full Text 69K in PDF

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