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2007 Economic Commentaries

  • A Brief History of Central Banks

    Michael Bordo


    A central bank is the term used to describe the authority responsible for policies that affect a country’s supply of money and credit. More specifically, a central bank uses its tools of monetary policy—open market operations, discount window lending, changes in reserve requirements—to affect short-term interest rates and the monetary base (currency held by the public plus bank reserves) and to achieve important policy goals. Read More

  • Coordination Failures in the Labor Market

    Guillaume Rocheteau Murat Tasci


    Can two countries, or two different states, with similar technologies, resources, and policies exhibit differences in labor market performance? In contrast to a commonly held view, the answer is yes under some conditions that we review in this Commentary. If these conditions are satisfied, the unemployment rate and the production of an economy can fluctuate even in the absence of shocks. Moreover, government intervention can be useful if it coordinates the economy on the preferred outcome. Read More

  • Regional Productivity Growth and Plant-Level Dynamics

    Yoonsoo Lee


    The mix of companies in the economy is always changing. The more-productive ones expand, and the less-productive ones are driven out of the market, freeing resources such as labor and capital for new ventures. This reallocation contributes more to aggregate productivity growth than the productivity gains achieved by individual businesses. The efficiency with which the process takes place is a key factor affecting rates of productivity growth in different regions and explaining why they differ. Read More

  • Are Consumers Cashing Out?

    Paul Bauer Daniel A. Littman


    The information age has led to many new forms of payment, including credit cards, debit cards, and online banking. In many ways, these new mechanisms seem preferable to cash. While the disappearance of cash is a very long way off, it seems people are starting to use it less. Read More

  • Regional Variation in Job Creation and Destruction

    Paul Bauer Yoonsoo Lee


    As companies and consumers adapt to a changing marketplace, jobs are eliminated and new ones are created. Rates at which this happens vary across states and reflect the flexibility of the labor market. More flexible markets are associated with faster growth. Read More

  • Prepayment Penalties on Subprime Mortgages

    O. Emre Ergungor


    As a result of the subprime mortgage mess, prepayment penalties are under close scrutiny. While these, like other kinds of contract terms, can be abused, there are good reasons for why they exist. In principle, they serve to extend credit to a greater number of borrowers. Read More

  • Peak Oil

    Joseph G. Haubrich Brent Meyer


    When will the world’s production of oil peak, and what will the economic consequences be? Calculating when turns out not to be so straightforward as it seems, but predicting the likely economic consequences is—and they’re not as bleak as many fear. Read More

  • The Growth of Cities in the Fourth District

    Timothy Dunne


    Many Fourth District cities have experienced relatively weak population growth over the past half century. One possible reason some cities have recently grown more is because they have better educated workforces. Recent research suggests that the educational attainment of residents is critical to population growth, particularly for cities in the Northwest and Midwest. Read More

  • What’s Really Happening in Housing Markets?

    Morris Davis Francois Ortalo-Magne Peter Rupert


    Most of the public concern about housing markets is based on claims that house prices have increased at historically anomalous rates and that house prices have outpaced incomes. The first claim is based on inaccurate historical data. The second is linked to relaxed credit constraints. House prices are likely to fall further, but not for the reasons usually proposed. Read More

  • Price Stability: Issues and Challenges

    Sandra Pianalto


    Central banks have done a very impressive job of achieving low and stable rates of inflation in recent years. But despite past successes, they must always be ready to deal with new challenges that might arise. Sandra Pianalto, president and CEO of the Federal Reserve Bank of Cleveland, discusses some of those challenges and how central banks might best prepare for them, in a speech she gave at a conference sponsored by the Deutsche Bundesbank and the Cleveland Fed in Frankfurt, Germany, on June 6, 2007. Read More

  • Global Risks to U.S. Monetary Policy

    Owen F. Humpage


    We recently invited four international economists to the Federal Reserve Bank of Cleveland to discuss global developments and to help us identify and understand the risks that these developments present for U.S. monetary policy. This Commentary develops a key macroeconomic concern that emerged from our conversations. Read More

  • The Minimum Wage and the Labor Market

    Guillaume Rocheteau Murat Tasci


    The federal minimum wage was established in 1938 by the Fair Labor Standards Act. Initially set at 25 cents an hour, the wage has been raised periodically to reflect changes in inflation and productivity. From September 1997 to the beginning of 2007, the minimum wage stood at $5.15 an hour, but its real value declined steadily from about 40 percent of the average private nonsupervisory wage to a mere 30 percent. Adjusted for inflation, the minimum wage was lower at the beginning of 2007 than at any time since 1955 (see figure 1). Meanwhile, the wage affected fewer people, as the fraction of hourly workers who earned no more than the minimum dropped from around 15 percent in 1980 to just 2.2 percent in 2006. On May 24, 2007, Congress passed a bill raising the federal minimum wage to $7.25 in three phases over two years. Read More

  • How Much U.S. Technological Innovation Begins in Universities?

    Jinyoung Kim Gerald Merschke


    Technological progress has been the key to improved living standards, but how and where do new ideas get their start? The answer might give us some insight into how we can support greater innovation. Some suggest universities have been an important source of innovative technology. A look at the people involved in the development of patented technologies can give an idea of how much innovation originates in universities. Read More

  • U.S. Ethnic Scientists and Entrepreneurs

    William Kerr


    Immigrants are exceptionally important for U.S. technology development, accounting for almost half of the country’s Ph.D. workforce in science and engineering. Most notably, the contribution of Chinese and Indian scientists and entrepreneurs in U.S. high-technology sectors increased dramatically in the 1990s. These ethnic scientific communities in the United States also help transfer new technologies back to their home countries. Read More

  • Mirror, Mirror, Who’s the Best Forecaster of Them All?

    Michael Bryan Linsey Molloy


    Say you need an accurate forecast of future GDP or inflation. What’s your best bet—the economist who was hot last year or the forecaster in the middle? The record indicates it’s tough to consistently beat the median prediction. Read More

  • Credit Spreads and Subordinated Debt

    Joseph G. Haubrich James Thomson


    Stock and bond prices contain all sorts of information about investors’ beliefs and expectations. For example, the interest rate on bank debt not insured by the FDIC has information about the health of the banks issuing the debt. Unfortunately, difficulties in extracting information from these subordinated debt prices reduces the information’s usefulness to regulators and policymakers. Read More

  • A Closer Look at Cleveland's Latest Poverty Ranking

    Mark E. Schweitzer Brian Rudick


    News that Cleveland’s poverty rate is the worst in the nation— and rising—has elevated the community’s concern about conditions in the city. But a closer look at the way poverty rates are calculated suggests that all the possible causes of Cleveland’s ranking have not been fully understood. Read More

  • Human Capital and the Challenge of Persistent Poverty in Appalachia

    James Ziliac


    Recent research suggests that investments in education may provide the key to reducing persistent poverty in regions such as Appalachia. A look at some trends in poverty and educational attainment in Appalachia over the past two decades confirms that the two are strongly related. Read More

  • Home Price Derivatives

    O. Emre Ergungor


    Until recently, homeowners had no way to protect the value of their homes against losses that could result from housing market downturns. With the derivatives contracts introduced by the CME last year, homeowners now have some means of protection, and new and better products are more likely to follow from them. Read More

  • Private Money in our Past, Present, and Future

    Bruce Champ


    The government isn’t the only entity allowed to issue money. Private citizens and businesses can too, and throughout U.S. history, they often have. But private money—as such money is called—isn’t issued much these days. What lessons have our experiences with private money taught us, and what do they imply for our money today and in the future? Read More