Economic Research and Data

2004 Economic Commentary

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Oil Prices: Backward to the Future? top
by Joseph G. Haubrich, Patrick Higgins, and Janet Miller
December 2004

A useful first guess about the future spot price of a commodity is usually found in its current futures price. But it doesn’t work that way when the commodity in question is oil. This Commentary explains why the characteristics of oil, particularly the value it can offer its owner by remaining in the ground, cloud the information that oil futures prices give about future oil prices.

Full Text 172K in PDF

Expected Inflation and TIPS top
by Charles T. Carlstrom and Timothy S. Fuerst
November 2004

When inflation-indexed Treasury securities were first introduced, economists hoped that they could be used to measure expected inflation easily. The only difference between securities that were indexed to inflation and those that were not was thought to be the extra compensation regular securities had to pay for what the market thought inflation would be. By now it is pretty clear that inflation-indexed Treasuries differ from regular securities in other ways that show up in the yields. This Commentary suggests what these are and discusses a method of correcting for them.

Full text 168K in PDF

The Fate of One-Dollar Coins in the
by Sébastien Lotz and Guillaume Rocheteau
October 15, 2004

The United States has introduced two one-dollar coins in the past 25 years, both of which have not circulated widely. Many other countries have replaced lower-denomination notes with coins and have achieved wide circulation and cost savings. Lessons from those countries suggest that achieving widespread use of a dollar coin is much harder if the note is allowed to remain in circulation.

Full text 116K in PDF

Game theory example of a network externality. This example shows how game theory can be used to explore some of the strategic interactions involved in the decision to adopt a new one-dollar coin.

A Hitchhiker’s Guide to the U.S. Current Account Problem
by Owen F. Humpage
October 1, 2004

The United States has run a current account deficit for the past 20 years, and, as a consequence, foreigners now hold unprecedented financial claims on the United States. At some point, foreigners will become reluctant to hold these claims and will set into motion a series of corrective economic adjustments. This Economic Commentary describes the interaction between our current account deficits and the broader economy and explains the problem that continued deficits pose.

Full text 128K in PDF

Are SBA Loan Guarantees Desirable? top
by Ben R. Craig, William E. Jackson, III, and James B. Thomson
September 15, 2004

Over the last 10 years, the Small Business Administration has been responsible for well over $100 billion in small business credit extensions, more than any single private lender. This Commentary explores the motivations for such a large investment of taxpayer dollars.

Full text 116K in PDF

When Is Checkout Time? top
by Paul W. Bauer
September 1, 2004

The death of paper checks has been predicted since the 1960s, but only recently has their use begun to decline. The end may be near, though, as two forces accelerate the trend away from checks: the growing acceptance of electronic payment instruments and the passage of legislation designed to reduce our reliance on paper checks.

Full text 120K in PDF

Per Capita Income Growth and Disparity in the United States, 1929–2003 top
by Paul Gomme and Peter Rupert
August 15, 2004

Economic theory says the average income of different regions should grow closer over time. Within the United States and across some of the richer countries, evidence suggests this is true.

Full text 164K in PDF

When Is a Rate Hike Not Tighter Policy? top
by David E. Altig
August 1, 2004

Now that the Fed has started to bump up the federal funds rate, the explanation often heard for it is that the Fed is “tightening” monetary policy to keep economic growth in check. But sometimes the Fed needs to move rates just to keep policy from changing.

Full text 120K in PDF

Why Are We Losing Manufacturing Jobs? top
by Eric O’ N. Fisher
July 2004

In the last 50 years, the share of employment in manufacturing has declined in the United States. The main reason for this phenomenon is labor-saving technological progress. Variation among state tax polices and international economic conditions have played only minor roles. The source of future prosperity will be technological advances in a service-oriented economy.

Full text 360K in PDF

Interest Rates, Yield Curves, and the Monetary Regime top
by Joseph G. Haubrich
June 2004

The yield curve has a wealth of information about future interest rates and economic conditions. Users should exercise caution, though, as many of the relationships that hold between the behavior of the curve and what it fortells depend on the monetary regime in place at the time the curve is drawn.

Full text 80K in PDF

Employment Surveys Are Telling the Same (Sad) Story top
by Mark Schweitzer and Guhan Venkatu
May 15, 2004

Two government surveys are used to gather information about employment in the U.S. economy, but the employment levels calculated from each seem to provide conflicting pictures of the labor market. The surveys are very different, but when the differences are taken into account and the survey results are compared with their respective business-cycle patterns, the conflict disappears.

Full text 80K in PDF

A Perspective on Monetary Policy top
by Sandra Pianalto
May 1, 2004

Sandra Pianalto is the president and chief executive officer of the Federal Reserve Bank of Cleveland. This Commentary contains the text of her remarks to the Forecaster’s Club of New York on April 22, 2004.

Full text 63K in PDF

Wage and Employer Changes Over the Life Cycle top
by Peter Rupert
April 15, 2004

Economists have long observed that wages alone do not fully reflect a job’s value—job “amenities” also play a role. Recent empirical studies have confirmed this observation to be the case. Researchers are also finding that workers frequently choose to take lower-paying jobs, which suggests that not only do workers care about the non-wage characteristics of a job, but also that they will change jobs throughout their lives to achieve the best mix of wages and amenities that is right (and obtainable) for them.

Full text 61K in PDF

Dividends top
by O. Emre Ergungor
April 1, 2004

In recent years, there has been increasing pressure on U.S. corporations to distribute earnings to shareholders in the form of dividends. This Commentary explains that dividends are important, but investors can err by reading too much into them.

Full text 57K in PDF

National Voice, a Regional View top
by Sandra Pianalto
March 15, 2004

Sandra Pianalto, president and chief executive officer of the Federal Reserve Bank of Cleveland, discusses the way the Federal Reserve System ensures that different regions of the country are represented in making monetary policy, describes the way our economy is changing, and suggests some ways the nation can meet economic challenges ahead. This Commentary is adapted from her remarks to the City Club of Cleveland on March 5, 2004.

Full text 60K in PDF

Mutual Funds, Fee Transparency,and Competition top
by John B. Carlson, Eduard A. Pelz, Erkin Y. Sahinoz
March 1, 2004

Mutual funds enable small, less experienced investors to hold diversifed portfolios of stocks and bonds at relatively low costs. Though the mutual fund market is competitive in many ways, fees can vary substantially for what are essentially identical products. This may be due to bundling of services, but it may also reflect some confusion on the part of less experienced investors, which inhibits comparative shopping among funds. Suggested reforms for improved fee disclosure seek to make fees more transparent for less informed investors and should improve competitive discipline among funds.

Full text 60K in PDF

On the Rotation of the Earth, Drunken Sailors, and Exchange Rate Policy top
by Owen F. Humpage
February 15, 2004

A growing number of observers seem to believe that official foreign exchange intervention offers a useful tool for managing the dollar’s descent. In particular situations, official transactions can sometimes produce temporary changes in exchange rates, but intervention does not permit countries to avoid or substantially modify trends in the movements of their exchange rates. At best, intervention is of very limited value.

Full text 120K in PDF

Island Money top
by Michael F. Bryan
February 1, 2004

On a small group of islands in the South Pacific, the people use a “money” so astonishing it often gets mentioned in classroom discussions on the subject. This Commentary takes a closer look at the stone money of Yap and asks what such an odd form of money can teach us about our own.

Full text 132K in PDF

The Trime top
by Michael F. Bryan
January 15, 2004

You might not have heard of the trime, the tiny 3-cent silver coin minted in the United States from 1851 to 1873, but it may have played a big role in shaping the kind of money you carry around in your wallet today.

Full text 152K in PDF

Arbitrage: The Key to Pricing Options top
by Ed Nosal and Tan Wang
January 1, 2004

Arbitrage has become associated in popular attitudes with the most ruthless and profit-driven of human impulses, but the opposite reputation might be more well-deserved. The ability to arbitrage is essential for the efficient operation of markets. An interesting application of the principle of arbitrage arose when it provided the breakthrough insight in economists’ solution to a formerly intractable problem: how to properly price the emergent financial instruments known as options.

Full text 116K in PDF

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