Economic Research and Data

2000 Economic Commentary

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Money Demand and Inflation in Peru, 1979-91 top
by Jaime Pedro Ventura
December 2000

In this essay, Jaime Ventura explores the factors that affected Peruvians' money demand during a terrible period of hyperinflation and considers whether the government caused the hyperinflation by printing too much money to gain seigniorage revenue. Hyperinflations seem to be a problem most countries have learned to avoid. But many economies have emerged recently whose leaders face tough financial challenges. Generating revenue by overprinting currency to meet fiscal expenses is temptation that some find hard to resist. Now is a good time to recollect hyperinflation's devastating consequences and its causes.

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The Performance and Profitability of CRA-Related Lending top
by Robert B. Avery, Raphael W. Bostic, and Glenn B. Canner
November 2000

In November 1999, the U.S. Congress asked the Board of Governors of the Federal Reserve System to conduct a comprehensive study of loans made under the Community Reinvestment Act of 1977. The Board's study focused on the loans' delinquency and default rates-their performance-as well as their profitability. This Commentary reports the results of the study.

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Two Deposit Insurance Funds Are Not Necessarily Better than One top
by James B. Thomson
October 15, 2000

Does the United States need to maintain two separate insurance funds for banks and thrifts? This Economic Commentary examines the arguments in support of a recent reform proposal for merging them.

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The Baby Boomers' Mega-Inheritance—Myth or Reality? top
by Jagadeesh Gokhale and Laurence J. Kotlikoff
October 1, 2000

Retirees are one of the wealthiest segments of the U.S. population, and today's retirees have more wealth than any previous generation. Some have conjectured that bequests out of this wealth will significantly boost the resources of the baby boomers—the next generation of retirees—bridging the gap between their retirement needs and resources. This Economic Commentary argues against such a view and explains why boomers have no alternative but to save for their own retirement.

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Understanding the Wash Cycle top
by Paul Bauer and Rhoda Ullmann
September 15, 2000

Money laundering has gone on since the first crime was committed for profit, but it has been explicitly illegal only since 1986. Interest in this topic soars whenever a major "laundromat" is uncovered. This Economic Commentary describes the money laundering process, summarizes the evolving statutes, and describes the Federal Reserve's role in assisting in their enforcement.

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Foreign Economic Growth and the Dollar top
by Owen F. Humpage
September 1, 2000

Analysts caution that rapid foreign economic growth could induce a depreciation of the dollar, as international investors diversify their portfolios for higher returns abroad. Although we cannot establish a simple relationship between foreign growth and the dollar, we can conclude that if a desire to diversify out of dollars lies dormant among investors, faster growth abroad may stir it.

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How to Keep Growing "New Economies" top
by Jerry L. Jordan
August 15, 2000

Rather than debate whether technical advances have created a "new economy," economists should focus on the more interesting and useful question: How do we create the sort of environment in which innovation and the productive use of new technology thrive, thereby creating economic prosperity? This Economic Commentary discusses the features governments must incorporate into their institutions in order to build an economic infrastructure that promotes prosperity. It is an excerpt of a paper presented by Jerry Jordan, President and CEO of the Federal Reserve Bank of Cleveland, at the 75th Annual Conference of the Western Economic Association International in Vancouver, B.C., Canada, on July 1, 2000. The full text of the paper will be available in Contemporary Economic Policy, vol. 19, no. 1 (January), 2001.

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Price Stability: Is a Tough Central Bank Enough? top
by Lawrence J. Christiano and Terry J. Fitzgerald
August 1, 2000

How can price stability be achieved? Conventional wisdom says that a tough, independent central bank is all that is necessary. However, a new view—known as the fiscal theory of the price level—argues that an appropriate fiscal policy is also required, no matter how tough the central bank may be. Whether one accepts the conventional or the fiscal theory view has significant implications for the way central banks should do business.

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Are We Saving Enough? top
by Jagadeesh Gokhale
July 2000

Americans are saving less than they used to. They have selected a curious time to change their habits—the number of years people spend in retirement is growing, and Social Security continues to suffer from long-term financial shortfalls. This Economic Commentary suggests that saving rates would have to be much higher for most American households if they are to maintain their living standards through retirement.

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Who Is That Guy on the $10 Bill? top
by Michael Bryan, Bruce Champ, and Jennifer Ransom
June 2000

Alexander Hamilton is perhaps the least known and most misunderstood of our nation’s founders. His contributions include creating a monetary standard, forming the foundation of our banking system, and establishing the creditworthiness of our young nation. This Economic Commentary describes the debt our nation’s financial strength owes to Hamilton.

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Economic Policy for Our Era: The Ohio Experience top
by Roger W. Ferguson, Jr.
May 15, 2000

Northeastern Ohioans can give much of the credit for their revitalized economy to the revolution in communications technology, or more precisely, to the globalization of business that the revolution has allowed. This revolution has also helped to reshape the way economic policy is being conducted here and around the world. In a recent speech in Cleveland, Roger W. Ferguson, Jr., vice chairman of the Federal Reserve Board of Governors, discussed Ohio’s economic recovery and the role of economic policy in a communications era. This Economic Commentary is adapted from his talk at the City Club of Cleveland’s Ameritech Power of Ideas 2000 Millenium Conference series on May 11.

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Investor Expectations and Fundamentals: Disappointment Ahead? top
by John B. Carlson and Eduard A. Pelz
May 1, 2000

The average annual return of the S&P 500 index since 1994 has exceeded 25 percent. Confidence is high and investors are looking forward to continued above-average returns. In this Economic Commentary, we attempt to reconcile investors’ expectations with a decline in the equity premium, using a standard approach to stock-price valuation.

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Raising the Deposit-Insurance Limit: A Bad Idea Whose Time Has Come? top
by James B. Thomson
April 15, 2000

Federal deposit insurance protects the savings of small depositors, but it increases the likelihood that banks will take risks they otherwise would not have. Some bankers have suggested doubling the level of coverage, from $100,000 to $200,000. While such an increase may put smaller banks on a level playing field with larger ones, it exceeds the amount necessary to protect small savers and is unfair to taxpayers.

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Fiscal Policy and Fickle Fortunes: What’s Luck Got to Do With It? top
by David Altig
April 1, 2000

If you buy a lottery ticket, you usually wait to see if you’ve won before going on a spending spree. This Economic Commentary explains why we ought to be just as careful about spending projected federal budget surpluses.

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Do Imports Hinder or Help Economic Growth? top
by Owen F. Humpage
March 15, 2000

Although Americans spent $1.3 trillion on foreign goods and services last year, many regard imports with hostility, preferring to “buy American.” But do imports really hurt the American economy? This Economic Commentary argues they do not. If anything, imports promote growth.

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Evolution in Banking Supervision top
by Ed Stevens
March 1, 2000

Banking supervision must keep pace with technical innovations in the banking industry. The international Basel Committee on Banking Supervision currently is reviewing public comments on its proposed new method for judging whether a bank maintains enough capital to absorb unexpected losses. This Economic Commentary explains how existing standards became obsolete and describes the new plan.

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The Century of Markets top
by Jerry L. Jordan
February 15, 2000

We are in the midst of a great transition, from an age in which governments intervened in nearly every facet of economic affairs to one in which market forces not only make political borders transparent to commerce, they shape political policies. This Economic Commentary is adapted from the John Bonython Lecture given by Jerry L. Jordan, president and CEO of the Federal Reserve Bank of Cleveland, at the Centre for Independent Studies in Sydney, Australia, in November 1999.

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Why Intervention Rarely Works top
by Owen F. Humpage and William P. Osterberg
February 1, 2000

Foreign-exchange-market intervention is generally ineffective when undertaken independent of monetary policy. But when undertaken as a goal of monetary policy, exchange-rate management can compromise price stability. This Economic Commentary explains the difficulties of implementing an intervention policy.

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Waiting for Policy Rules top
by Joseph G. Haubrich
January 15, 2000

Should central bankers be free to decide what policy actions they will take and when they will take them, or should they agree to an explicit policy rule and stick to it? The discretion-versus-rules debate is an old one, but unfortunately, it has rarely addressed the fact that the benefits of moving from one regime to the other depend on the timing of the move. This Economic Commentary explores the value of waiting to adopt rules and the way it is affected by uncertainty.

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The Evolving Global Monetary Order top
by Jerry L. Jordan
January 1, 2000

In a speech at the Cato Institute, Jerry L. Jordan, President and CEO of the Federal Reserve Bank of Cleveland, discussed the forces shaping the emerging global monetary order and offered guidelines for the design of any international organization promoting efficient international financial markets. This Economic Commentary is adapted from his remarks at the Institute's Seventeenth Annual Monetary Conference on October 21, 1999.

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