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1996 Economic Commentaries

  • Monetary Policy and Real Economic Growth


    Owen F. Humpage

    Abstract

    The media frequently take central banks to task for failing to encourage real economic growth. Usually, such criticisms center on the business cycle, with analysts calling for monetary ease when growth falls below its recent trend and, somewhat ironically, chiding policymakers for responding too quickly when growth rises above trend. Read More

  • Combining Bank Supervision and Monetary Policy


    Joseph G. Haubrich

    Abstract

    Many American organizations, from corporations to government agencies, have reengineered themselves, rethinking their businesses from the ground up. On a larger scale, the former Soviet Bloc countries are in the process of transforming their entire economies-and governments-as they join the free world. Developing countries reengineer as they modernize. Read More

  • Competing Currencies: Back to the Future?


    Ben R. Craig

    Abstract

    Sometimes, an emerging or rapidly changing currency experiences a period in which it competes with a second currency as a medium of exchange. The competing currencies are not like quarters and dollar bills, where the relative price is fixed, or like checks and dollar bills, where the unit of account is always the same. During an episode of dual currencies, prices are often denominated in each currency, and the relative price of an item fluctuates as the advantages offered by a particular currency change. Read More

  • Jobs Creation and Government Policy


    Jerry Jordan

    Abstract

    Before the Great Depression of the 1930s, the notion that government ought to be responsible for creating jobs would have seemed absurd. Today, however, we commonly hear aspiring politicians declare that their number-one economic objective would be to increase employment. Read More

  • The Functions and Future of Retail Banking


    Jerry Jordan

    Abstract

    At the turn of the century, one of the largest employers in America was the U.S. Ice Trust, which cut, stored, and delivered ice for people's "iceboxes." Today, that industry employs only a fraction of the workforce it once did. This happened not because people stopped consuming cool fresh food, but because the refrigerator-a product born of new technology-all but eliminated the need for ice blocks. In contrast, the Fisher Company, which produced carriages and buggies in the early years of the century, is still in the business of making automotive bodies. Read More

  • Reducing Working Hours: American Workers' Salvation?


    Terry Fitzgerald

    Abstract

    In March 1991-the trough of the most recent recession-the civilian unemployment rate stood at 6.8 percent. Fifteen months into the recovery, that rate had increased to 7.8 percent, leading many in the media to decry the recovery as "jobless." Read More

  • Discrimination in Mortgage Lending: What Have We Learned?


    Stanley Longhofer

    Abstract

    It has now been nearly four years since researchers at the Federal Reserve Bank of Boston released their groundbreaking study on residential mortgage lending patterns in that city. Their findings showed that black and Hispanic applicants were over 50 percent more likely to be denied a mortgage loan than whites, even after taking into account many factors relevant to the credit-granting decision. In the end, they concluded that this disparity was the result of taste-based discrimination (bigotry) on the part of lenders active in the area. Read More

  • Inflation Targets: The Next Step for Monetary Policy


    Mark Sniderman

    Abstract

    In September 1995, Senator Connie Mack (R-Fla.) introduced legislation that would require the Federal Reserve to provide a numerical definition of price stability, to set a timetable for achieving it, and to subordinate other monetary policy objectives to it. The merits of these provisions have been debated at length by economists and policymakers alike. Some believe that a monetary policy based on price stability must compromise economic growth, while others note that the differences between a price-level objective and an inflation target go way beyond semantics. I believe that the nation's economic prosperity will be enhanced by a price-stability approach to monetary policy regardless of how the objective is defined. Read More

  • Interest Rate Rules for Seasonal and Business Cycles


    Charles T. Carlstrom Timothy Fuerst

    Abstract

    When the Federal Reserve System was established in 1914, part of its purpose was "to furnish an elastic currency," that is, a currency that could be quickly expanded or contracted as needed. Today, the Fed fulfills this function by supplying the reserves needed to prevent wide seasonal swings in interest rates. When money demand increases sharply during the holiday season, the Fed steps in and supplies the liquidity necessary to keep interest rates from rising. Monetary base growth is high during the fourth quarter, when output rises, and low during the first quarter, when output falls. Read More

  • Welfare Reform and the Cyclicality of Welfare Programs


    Elizabeth Powers

    Abstract

    Congress, the White House, and the nation's governors all seem to agree that it's time for a dramatic overhaul of the U.S. welfare system. What has been harder to come by is a consensus on the fairest and most politically feasible way to implement that goal. President Clinton vetoed the welfare provisions in both the budget reconciliation bill and the Republican-sponsored Personal Responsibility Act of 1995, while the National Governors Association continues to stand solidly behind similar provisions in its own reform initiative. Read More

  • The Credit Union Industry: An Overview


    Barbara Good

    Abstract

    Credit unions play a crucial role in the U.S. financial industry, serving more than 68 million people. Although the percentage of assets under their control is dwarfed by that of commercial banks, credit unions have some unique characteristics and have evolved into increasingly competitive, customer-oriented providers of financial services. Their growth rate during this decade has been noteworthy: While commercial banks' share of industry assets has declined, credit unions have experienced significant growth. Read More

  • A Simple Proposal for Privatizing Social Security


    David Altig Jagadeesh Gokhale

    Abstract

    In an area as contentious as federal budget policy-witness the tortuous road to the just recently settled budget for fiscal year 1996-lawmakers agree about one thing: The Social Security system as we know it is unsustainable in the long run. Unfortunately, this recognition has yet to yield any concrete action. The system remains the proverbial third rail of budget politics-touch it, and your political life is over. Read More

  • Where Is All the U.S. Currency Hiding?


    John Carlson Benjamin Keen

    Abstract

    The total amount of U.S. currency held by the non bank public equals about $375 billion, or nearly $1,400 for every man, woman, and child in the country. Clearly, few individuals ever hold this much cash at any point in time. On the surface, the sheer volume of currency outstanding seems inconsistent with common sense. Even if one considers currency balances held by businesses involved largely in cash transactions like retailers-and by participants in the underground economy-like drug dealers-it is hard to reconcile the difference between households' holdings and total currency outstanding. So where is this currency hiding? Read More

  • The Future of Banking Supervision


    Jerry Jordan

    Abstract

    I believe that in the years to come, bank auditors will be playing an ever increasing role in the regulatory system and in ensuring the well-being of banks and the financial system. This will happen not because of new legislation or regulations, but because market participants and banking officials need information about financial institutions that is accurate, timely, and comprehensive. In my remarks, I will elaborate on how market forces have affected the evolution of the financial services industry, paying particular attention to the roles of information and auditing. Read More

  • State Employment 1995: Slowing to a Recession?


    Mark E. Schweitzer Kristin Roberts

    Abstract

    Employment in 1995 began with a bang and ended with a whimper, inspiring some to prognosticate a recession. A February 1996 spurt in employment growth (with 631 ,000 new jobs added, the highest monthly gain since 1983) has silenced many of the bears. The sudden boom came largely from new job starts that were delayed by bad weather or, possibly, missed when the government shutdown forced survey dates to be rescheduled. More subtly, the rebenchmarked state employment numbers have cast a rosier light on 1995. Read More

  • Are Successful Interventions Random Events?


    Owen F. Humpage

    Abstract

    From time to time, the United States enters the foreign exchange market in an attempt to influence the behavior of exchange rates. The objective may be to nudge an exchange rate more closely in line with some set of fundamentals or to dampen excessive volatility. Sometimes these interventions appear to be successful, and the dollar quickly reverses direction or moderates its movements. At other times, however, these interventions seem completely ineffectual. Read More

  • Glass-Steagall and the Regulatory Dialectic


    João dos Santos

    Abstract

    Congress, the Administration, and the bank regulatory agencies are considering various proposals to usher the U.S. banking system into the twenty-first century. The pace of financial innovation spurred by advances in information technology, globalization of the economy, and competition from other financial institutions-has made this reform seem long overdue. However, any clear understanding of the causes and consequences of the reform movement must recognize that some of the financial innovations that have sprung up over the last three decades were specifically designed to avoid regulations that current reform efforts may repeal. Read More

  • Mortgage Interest Deductibility and Housing Prices


    Stephen Cecchetti Peter Rupert

    Abstract

    Over the past few years, there have been several proposals for replacing the income tax system with a system based on taxing consumption. Many of the proposed reforms include eliminating the deductibility of home-mortgage interest, but this provision raises a question: Since the deduction subsidizes home ownership, will eliminating it substantially reduce the value of owner-occupied housing? Read More

  • Making Sense of the Federal Budget Impasse


    David Altig

    Abstract

    In November, the U.S. Congress passed the Balanced Budget Act of 1995. The bill provided a fiscal package that would, according to Congressional Budget Office projections, balance the federal budget by fiscal year 2002. On November 20, President Clinton signed into law a Continuing Resolution for Fiscal Year 1996 that provided short-term financing for most federal government operations. It also heralded an agreement between the President and Congress on the goal of producing a long-term budget plan that would eliminate the federal deficit on the seven-year schedule proposed in the Balanced Budget Act. Read More

  • Social Security: Are We Getting Our Money's Worth?


    Jagadeesh Gokhale Kevin Lansing

    Abstract

    Consider the following investment scenario. You tum over 10 percent of your salary each year to an investment manager who pools your contributions with those of others to form something that looks like a mutual fund. The manager assembles a portfolio that ends up earning a meager rate of return less than 1 percent after adjusting for inflation. Read More