Economic Commentary
Providing you with in-depth analysis of current economic and financial issues.
2001
- December 2001
- Swaps and the Swaps Yield Curve
- Interest rate swaps have become a popular financial derivative, and market watchers and economists are paying closer attention to them and their associated yield curves. This Commentary gives a brief introduction to swaps and their relation to other interest rates. (PDF)
- November 2001
- The Curiously Different Inflation Perspectives of Men and Women
- That men and women occasionally see things differently is not a remarkable observation. But that the sexes could report vastly different perspectives on the rate at which prices are rising over a long period of time is astonishing. This Commentary describes the difference in inflation sentiment held by men and women—a puzzle that may hold the key to interpreting survey-based data on household inflation expectations. (PDF)
- October 15, 2001
- The Demographics of Inflation Opinion Surveys
- In this Commentary, we document that people report very different perceptions and predictions of inflation depending upon their income, education, age, race, and gender—a strange finding that may provide an important clue to understanding how to interpret survey data of inflation expectations. (PDF)
- October 1, 2001
- How Well Does the Federal Funds Futures Rate Predict the Future Federal Funds Rate?
- Contrary to popular belief, federal funds futures rates do not tell us precisely where the market thinks federal funds rates will be in the future. On average, futures rates overpredict future fed funds rates, and, depending on whether fed funds rates are falling or rising, the futures rate may consistently overestimate or underestimate the future fed funds rates. To obtain a reliable estimate of the future fed funds rate, one must adjust the fed funds futures rate appropriately to account for the bias and past movements of the fed funds rate. (PDF)
- September 15, 2001
- Who Benefits from Increasing the Federal Deposit Insurance Limit?
- This Commentary seeks to shed light on the issue of deposit insurance coverage by examining who would benefit from increases in the insured-deposit limit. (PDF)
- September 1, 2001
- Productivity Gains: How Permanent?
- This Economic Commentary confirms that productivity growth has been unusually robust over the last few years and explores reasonable assumptions about the likely future pattern of productivity growth. These assumptions can generate substantially different productivity growth paths. Government forecasts, which guide the major tax and benefit programs, have been increased in recent years yet remain cautious. (PDF)
- August 15, 2001
- Does Social Security Worsen Inequality?
- Gaps between the rich and poor grow once people hit retirement. Some say privatizing Social Security will increase wealth inequality among retirees. This Commentary argues it won’t and suggests that the current system may be reducing wealth mobility from one generation to the next. (PDF)
- August 1, 2001
- From Market Failure to Market-Based Solution: Policy Lessons from Clean Air Legislation
- How can the United States balance its need for increased energy production with national and global environmental concerns? This Commentary argues that competitive markets can be used to address environmental needs without placing an excessive burden on citizens. (PDF)
- July 2001
- Money, Manufacturing, and the Strong Dollar
- U.S. firms are facing tough international competition, and the U.S. trade deficit has grown to a level that some find alarming. Why doesn’t the United States respond by easing monetary policy to lower the dollar’s exchange rate and reduce the price of U.S. goods in foreign markets? This Commentary argues that monetary policy is incapable of improving the competitive position of U.S. manufacturing through exchange rate manipulation. The temporary gains monetary easing might achieve through a nominal dollar depreciation would be offset by higher inflation and decreased foreign investment. (PDF)
- June 2001
- Effective Supervision and the Evolving Financial Services Industry
- Technology, market consolidation, international competition, and new legislation are changing the face of the financial services industry. How are the agencies responsible for ensuring the safety and soundness of our financial system responding? (PDF)
- May 15, 2001
- On the Cost of Inflation
- The FOMC has two objectives: maximizing sustainable economic growth and maintaining price stability. At times-like the past year-these goals appear to be in conflict. This Commentary outlines some economic theory that suggests that in the long run, the FOMC can achieve its two objectives by focusing primarily on its price stability target. (PDF)
- May 1, 2001
- Monetary Policy with Humility
- When the economy slows, monetary policymakers face pressure to deviate from their longer-term goals to address short-term problems. This Commentary argues that the Fed must stay focused on the long term—maintaining the stable purchasing power of the dollar. (PDF)
- April 15, 2001
- Fiscal Policy in an Era of Surpluses
- Federal surpluses have come as a pleasant surprise, but using them to finance additional government spending would be disastrous. By the middle of the next decade, Social Security and Medicare outlays will soar beyond projected payroll taxes. While using the surpluses to offset future entitlement payments is a good idea, finding a way to do it is not so easy. This Commentary suggests it could be accomplished by paying down the national debt and combining the remaining surplus with Social Security reform. (PDF)
- April 1, 2001
- Why Is the Dividend Yield So Low?
- The dividend yield on stocks has dropped sharply over the last decade. Is its drop a consequence of irrational exuberance? This Commentary assesses alternative explanations for the diminished dividend yield. (PDF)
- March 15, 2001
- Beyond Zero: Transparency in the Bank of Japan’s Monetary Policy
- Japan’s economy has problems that, undoubtedly, are more complex than monetary policy might be expected to solve. But other kinds of policy actions stand a better chance of success when monetary policy is transparent. Transparency means that market participants’ anticipations of central bank actions are congruent with those of policymakers themselves. The Bank of Japan has made repeated efforts toward greater transparency since achieving independence in 1998. (PDF)
- March 1, 2001
- Life-Cycle Income and Consumption Variability
- By all accounts, economic inequality is growing-the rich are getting richer, and the poor are getting poorer. This Economic Commentary explores inequality in income and consumption and asks whether inequality is determined early in life, before individuals enter the labor market, or whether it becomes manifest during the working years (PDF)
- February 15, 2001
- Perils of Price Deflations: An Analysis of the Great Depression
- If a central bank adopted a zero inflation target, it would, in practice, occasionally deviate up and down from that rate, and the economy would experience episodes of mild inflation and deflation. Is deflation—a decrease in the level of prices—a cause for concern? Deflation can cause output to decline, but to what extent? This Economic Commentary explores how much of a problem deflation might be for modern economies by estimating the effect of massive price declines on output during the Great Depression. The authors find that while deflation can cause output to decline, mild episodes of deflation are unlikely to be a problem. (PDF)
- February 1, 2001
- Risk Management and Financial Crises
- Some financial failures occur when people don’t understand the risks they take. Others are simply bad luck. But the most important cases happen when private risks have an extra social aspect. (PDF)
- January 15, 2001
- A Retrospective on the Stock Market in 2000
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- January 1, 2001
- Riding the S-Curve: Thriving in a Technological Revolution
- The information technology revolution offers a great opportunity to leap forward in our collective prosperity. All of us stand to benefit. But some will take to the revolution more easily than others-policymakers have learned this lesson from previous economic revolutions. This Economic Commentary is adapted from a speech given by Jerry L. Jordan, president and CEO of the Federal Reserve Bank of Cleveland, to the Ohio Aerospace Institute on October 12, 2000. (PDF)