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1990 Economic Commentaries

  • Price Stability and the Swedish Monetary Experiment


    Susan Black William Gavin

    Abstract

    During the last two decades, the consumer price index has more than tripled. This article examines the feasibility and appropriateness of establishing a direct, price-index target as the primary objective of U.S. monetary policy, and notes the results of the Swedish Riksbank's experiment with such an approach during the 1930s. Read More

  • How Credible are Capital Spending Surveys as Forecasts?


    Gerald Anderson John Erceg

    Abstract

    Business analysts should be aware that the survey of capital spending plans published by the U.S. Department of Commerce has several limitations as a forecast of quarterly and annual fixed investment. Although the annual expectations are relatively reliable, the quarterly spending projections are often less accurate than other inexpensive and equally accessible forecasts. This Economic Commentary compares the reliability of the Commerce Department survey with that of several alternative forecasts, and suggests some underlying reasons for the discrepancies between the survey's projections and actual capital expenditures. Read More

  • A European System of Central Banks: Observations from Abroad


    W. Lee Hoskins

    Abstract

    In an effort to enhance the economic advantages of a single market, the European Economic Community is considering monetary union. A European System of Central Banks would be structured after the German Bundesbank model and vested with the power to conduct a single monetary policy and perhaps issue a common currency. In a recent speech to a group of German bankers and business representatives, Cleveland Federal Reserve Bank President W. Lee Hoskins argued that price stability must be the sole objective of a central bank, and pointed out some pitfalls that the Community must avoid if monetary union is to be successful. Read More

  • Oil, the Economy, and Monetary Policy


    Gerald Anderson Michael Bryan Christopher Pike

    Abstract

    Soaring oil prices have caused speculation about the prospects for a national recession this winter. These concerns seem to be well grounded; all but one of the eight post-World War II recessions in the United States were preceded by an oil price shock. However, there is also evidence that the influence of oil prices on economic performance has diminished. This article examines the impact of an oil shortage on the U.S. economy from a theoretical perspective, reviews the effects that such shocks have had in the past, and discusses the problems that these crises present for monetary policy. Read More

  • The Outlook After the Oil Shock: Between Iraq and a Soft Place


    John Erceg Lydia Leovic

    Abstract

    The Fourth District Economists' Roundtable met last month to discuss the economic outlook in the wake of the Iraqi invasion of Kuwait. The panelists expect a weaker economy and more inflation for several quarters, followed by a return to more normal economic conditions. Participants also discussed possible monetary policy responses to the risks of recession and higher inflation. Read More

  • Don't Worry, We'll Grow Out of It: An Analysis of Demographics, Consumer Spending, and Foreign Debt


    Michael Bryan Susan Bryne

    Abstract

    Between the mid-1960s and early 1980s, the age distribution of the U.S. labor force was changed dramatically by the inrush of the baby-boom generation. The authors examine the implications of this shift for consumer spending, debt, and foreign investment, and conclude that, if left to themselves, consumers will simply outgrow their apparently spendthrift ways. Read More

  • Can State Employment Declines Foretell National Business Cycles?


    Randall Eberts

    Abstract

    Is it possible to predict national recessions by following the employment performance of specific states or regions? The author investigates this question from a historical perspective by comparing the employment patterns of states to the health of the national economy over the post-WWII period. Read More

  • Underlying Causes of Commercial Bank Failures in the 1980s


    Lynn Seballos James Thomson

    Abstract

    Banks failed at record rates during the past decade, and no relief appears to be in sight. This article examines the contributions of economic and managerial factors to the highest bank failure rate since the Great Depression. Read More

  • Inflation and Growth: Working More vs. Working Better


    Michael Bryan

    Abstract

    The record of recent economic expansions shows that work effort has supplanted productivity as a source of growth. Inflation may be one of the prominent causes of this trend, because it promotes errors in resource allocation and discourages capital development, eventually leading to loss of wealth in the economy. Instead of producing a faster rate of economic growth, then, higher rates of inflation reduce economic welfare by causing us to work harder rather than better.</p> Read More

  • Payment System Risk and Financial Reform


    W. Lee Hoskins

    Abstract

    Shrinking the federal safety net must be a precondition of financial reform in the United States, or increasing bank powers will expand the realm of the economy underwritten by the taxpayer. Read More

  • State and Local Red Ink: Crisis or Opportunity?


    Brian Cromwell Irene Wirkus

    Abstract

    Have the Reagan-era cutbacks in federal aid to state and local governments resulted in decreased economic efficiency and social equity, or have they had just the opposite effect, as some economic analysts would argue? Read More

  • Minority-Owned Banks: History and Trends


    Doug Price

    Abstract

    The minority banking industry, which experienced significant growth during the 1970s, remained strong through the 1980s, with a 71-percent increase in total assets between 1983 and 1989. But hidden in that figure is a dynamic process of growth and change resulting not only from minority banks' efforts to adjust to deregulation, adverse macroeconomic conditions, and increased competition—factors with which all U.S. banks must deal—but also from their efforts to deal with the specific environmental factors and risks that they alone face. Read More

  • Current Outlook: Sustained Growth, Sustained Inflation


    John Erceg Paul Nickels

    Abstract

    Forecasters attending the most recent Fourth District Economists' Roundtable expect a stronger long-term growth path for the economy than experienced in past months, with brightened prospects for manufacturing following last year's slowdown. Despite some surprising CPI figures for 1990:IQ, the economists call for a sustained underlying rate of inflation of about 4 percent through 1991. Read More

  • Making Sense of the Moynihan Gambit: A Perspective on the Social Security Debate


    David Altig

    Abstract

    Is the U.S. Social Security system more like a pension plan, wherein Social Security taxes represent a form of premiums for its contributors, or more like a tax and transfer system, which provides a pay-as-you-go income support program for its beneficiaries? Before linking the current Social Security financing debate to legislative attempts to balance the federal budget, we should define the nature of Social Security policy and evaluate whether the present level and composition of government expenditures are prudent. Read More

  • A Critique of Monetary Protectionism


    W. Lee Hoskins Owen F. Humpage

    Abstract

    Despite the political appeal of exchange-market manipulations, monetary protectionism is unsupported by economic arguments. Manipulation of nominal exchange rates has no permanent effect on the terms of trade and risks inflation. Read More

  • A Monetary Policy for the 1990s


    W. Lee Hoskins

    Abstract

    Lack of credibility and predictability in the monetary policy process can result from a perception of vagueness about the ultimate objectives of policy and the steps that will be taken to correct deviations from economic goals. Rather than providing more information about the current policy process, the Federal Reserve could improve the performance of the economy by committing to the long-term goal of price stability and by announcing a time frame within which to achieve it. Read More

  • Standardizing World Securities Clearance Systems


    Ramon DeGennaro Christopher Pike

    Abstract

    The dramatic increase in the volume of international securities trading has strained the present system of settling trades. The costs and risks of such trading can no longer be ignored. An international organization, the Group of Thirty, has recommended changes in the structure of financial markets to minimize these problems. Read More

  • The High-Yield Debt Market: 1980-1990


    Richard Jefferis Jr.

    Abstract

    Did the collapse of Drexel Burnham Lambert in February signal the end of the high-yield debt market? Considering that the economic forces responsible for creating the market remain in place, it is unlikely that junk bonds will disappear any time soon. Read More

  • The Case for Price Stability


    W. Lee Hoskins

    Abstract

    In recent testimony before the U.S. House of Representatives' Subcommittee on Domestic Monetary Policy, Federal Reserve Bank of Cleveland President W. Lee Hoskins presented this statement of his support for a Congressional mandate making price stability the Federal Reserve's primary policy goal. House Joint Resolution 409, by committing the central bank to create an explicit plan for price stability, would allow the Federal Reserve to achieve maximum output and employment without incurring the detrimental effects of inflation. Read More

  • The Economic Outlook: Growth Weakens, Inflation Unchanged


    John Erceg Paul Nickels

    Abstract

    The consensus forecast among economists attending the most recent Fourth District Economists' Roundtable calls for continuing slow growth well into 1990 followed by a more rapid growth in output by late this year. Little improvement is expected, however, in the overall inflation rate despite the current slow growth. Read More

  • How Are Wages Determined?


    Erica Groshen

    Abstract

    Much of the variation in wages among employees cannot be explained by the usual variables of individual worker characteristics, demographics, and industry classification. Based on evidence from three labor markets in the Fourth Federal Reserve District, the author finds that employer differentials account for a large share of the variation in wages, with important implications for economics and management. Read More

  • Is Current Fiscal Policy an Obstacle to Sound Monetary Policy?


    W. Lee Hoskins

    Abstract

    Must the pursuit of sound monetary policy await further progress toward more desirable fiscal policies? Arguments that monetary policy must offset the economic effects of fiscal policy choices may be based on false premises. Read More

  • Can R&D Be the Rx for the Midwest?


    Julia Melkers Randall Eberts

    Abstract

    Vital to a region's long-run economic growth is the ability of its manufacturing sector to improve product quality and to introduce more technologically advanced products. For the Midwest, research and development spending has been low compared with spending by firms on the East and West coasts. The authors examine whether this shortfall has been significant in the relationship between Midwest firms' R&D expenditures and their sales. Read More

  • Does The Fed Cause Christmas?


    Charles T. Carlstrom Edward Gamber

    Abstract

    The casual observer, noting that money and output are frequently correlated, might assume that there is a causal relationship between the two. A closer look at the evidence suggests otherwise. Read More