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2011 Economic Commentaries

  • Urban Growth and Decline: The Role of Population Density at the City Core


    Kyle Fee Daniel Hartley

    Abstract

    <p>In recent decades, some cities have seen their urban centers lose population density, as residents spread farther out to suburbs and exurbs. Others have kept populous downtowns even as their environs have grown. Population density in general has economic advantages, so one might wonder whether a loss of density, which may be a symptom of negative economic shocks, could amplify those shocks. We look at four decades of census data and show that growing cities have maintained dense urban centers, while shrinking cities have not. There are reasons to think that loss of population density at the core of the city could be particularly damaging to productivity. If this is the case, there could be productivity gains from policies aimed at reversing that trend.</p> Read More

  • Concentrated Poverty


    Dionissi Aliprantis Mary Zenker

    Abstract

    <p>Although the U.S. poverty rate was the same in 2000 as it was in 1970, the geographic distribution of the poor has become more concentrated. A higher concentration of poor in poor neighborhoods is a concern because it may mean the poor are exposed to fewer opportunities that affect their outcomes in life, like employment and income. We show where and how poverty has become more concentrated in the United States, and who is most likely to be affected.</p> Read More

  • Municipal Finance in the Face of Falling Property Values


    Thomas J. Fitzpatrick IV Mary Zenker

    Abstract

    <p>The fall in property values associated with the recent recession has caused a decline in property taxes which may be amplifying local government budget crises across the country. Cuyahoga County is set to reappraise property values in 2012, and when it does it may only then absorb the full force of the housing market losses caused by the recession. We estimate the potential losses in property values and the county&rsquo;s tax base and find that the impact could be significant.</p> Read More

  • Economic Policy Uncertainty and Small Business Expansion


    Mark E. Schweitzer Scott Shane

    Abstract

    Small businesses continue to report problems obtaining the financing they need. Because small business owners may rely heavily on the value of their homes to finance their businesses (through mortgages or home equity lines), the fall in housing prices might be one of the causes of their difficulty. We analyze information from a variety of sources and find that homes do constitute a significant source of capital for small business owners and that the impact of the recent decline in housing prices is significant enough to be a real constraint on small business finances. Read More

  • How Well Does Bankruptcy Work When Large Financial Firms Fail? Some Lessons from Lehman Brothers


    Thomas J. Fitzpatrick IV James Thomson

    Abstract

    <p>There is disagreement about whether large and complex financial institutions should be allowed to use U.S. bankruptcy law to reorganize when they get into financial difficulty. We look at the Lehman example for lessons about whether bankruptcy law might be a better alternative to bailouts or to resolution under the Dodd-Frank Act&rsquo;s orderly liquidation authority. We find that there is no clear evidence that bankruptcy law is insufficient to handle the resolution of large complex financial firms.</p> Read More

  • Reducing the Federal Deficit: Approaches in Some Other Countries


    Daniel R. Carroll John Lindner

    Abstract

    The United States is not the first advanced modern economy to face a serious federal budget challenge. A number of countries have seen their debt rise to unacceptable levels in recent decades, and they have taken steps to rein it in. We explore the approaches that Canada and the United Kingdom have used. Though there are important differences in approaches and countries, we draw five useful lessons for the reforms that may be proposed in the U.S. as it addresses its fiscal challenges. Read More

  • The Growing Difference in College Attainment between Women and Men


    Dionissi Aliprantis Timothy Dunne Kyle Fee

    Abstract

    <p>&nbsp;</p> Read More

  • The Future of Inflation


    Joseph G. Haubrich

    Abstract

    <p>According to consumer price measures like the CPI, inflation has recently jumped up a notch. What those measures don&rsquo;t tell us is whether the increase will persist. In this Commentary, we look at a measure that does. The measure incorporates data on past inflation rates, surveys of expected inflation, inflation swaps, and a variety of interest rates. It provides estimates of inflation, along with expected inflation and real interest rates. A look at the measure&rsquo;s estimates suggests that the recent increases in inflation are likely to be temporary.</p> Read More

  • Macroeconomic Models, Forecasting, and Policymaking


    Andrea Pescatori Saeed Zaman

    Abstract

    <p>&nbsp;</p> Read More

  • This Time May Not Be That Different: Labor Markets, the Great Recession and the (Not So Great) Recovery


    Murat Tasci

    Abstract

    The last three U.S. recessions have been followed by &ldquo;jobless recoveries.&rdquo; The lack of robust job growth once GDP starts to pick up has a lot people asking if labor markets have changed in some fundamental way. I look at employment and unemployment growth in every recession since the 1950s and find that the current levels of these indicators can be explained by the severity of the Great Recession and the slow growth of GDP in the recovery. Read More

  • Unemployment, Labor Costs, and Recessions: Implications for the Inflation Outlook


    Kyle Fee Mark E. Schweitzer

    Abstract

    <p>Economists have been arguing about the connection between unemployment and inflation for decades. Critics claim that the connection is unreliable and leads policymakers astray, while others argue that the relationship is useful for forecasting. We examine the more direct connections between elevated unemployment levels and the rate of increase in wage and labor costs, more generally. We find that wage and labor cost growth has declined markedly following recent recessions. It has again declined sharply in the most recent recession. We also find that compensation typically remains subdued during the initial phases of recent recoveries. This is again the case in the current recovery, making labor costs a significant restraining force on inflation going forward.</p> Read More

  • Resolving Large, Complex Financial Firms


    Thomas J. Fitzpatrick IV Mark Greenlee James Thomson

    Abstract

    <p>How to best manage the failure of systemically important financial firms was the theme of a conference at which the latest research on the issue was presented. Here we summarize that research, the discussions that it sparked, and the areas where considerable work remains.</p> Read More

  • Credit Flows to Business During the Great Recession


    Pedro S. Amaral

    Abstract

    <p>During the last recession, credit flows suffered their worst slowdown since World War II. A look at selected credit market measures gives some insight into why the slowdown was so severe. The measures also show that in spite of the size of the shock, credit flows actually recovered extremely quickly&mdash;a testament to the depth of the credit markets, and possibly the interventions that were taken to support them.</p> Read More

  • Food and Energy Price Shocks: What Other Prices Are Affected?


    Todd E. Clark Saeed Zaman

    Abstract

    <p>&nbsp;Sharp rises in energy and other commodity prices have recently ignited concerns about inflation. Will these price increases spill over to other prices more generally? We study the typical responses of different price shocks and assess whether the recent behavior of producer and consumer prices is consistent with historical norms. Our analysis shows that the behavior of various producer and consumer prices since late 2009 has generally matched up with historical patterns. Overall, our findings suggest that effects of the recent energy and commodity price shocks on core consumer prices will be modest going forward.</p> Read More

  • Do Bank Branches Matter Anymore?


    O. Emre Ergungor Stephanie Moulton

    Abstract

    <p>Bank branches have been disappearing in some major metropolitan areas, as their populations and economic activity decline. Our research suggests that brick-and-mortar branches provide tangible benefits to consumers, especially in low- and moderate-income neighborhoods. When branches are located in these areas, borrowers living there default less and have greater access to credit.</p> Read More

  • Foreclosure-Related Vacancy Rates


    Stephan D. Whitaker

    Abstract

    <p>The national foreclosure crisis has caused there to be millions more vacancies in our housing stock than before. Vacant homes lower their community&rsquo;s property values and quality of life. Neighbors and public officials know foreclosed homes sit empty for months, but precise measures of foreclosure-related vacancy are rare. Using data from Cuyahoga County, Ohio, I trace the rise and fall in the vacancy rates of homes during the 18 months following their foreclosure. Ominously, the data suggest that foreclosure may permanently scar some homes. Foreclosed homes still have higher vacancy rates than neighboring houses two to five years after a sheriff&rsquo;s sale.</p> Read More

  • Labor Market Rigidity, Unemployment, and the Great Recession


    Murat Tasci Mary Zenker

    Abstract

    <p>&nbsp;</p> Read More

  • Shocks and the Economic Outlook


    Kenneth Beauchemin

    Abstract

    <p>The U.S. economy has recently been hit by a number of supply shocks, and businesses and consumers have seen oil, food, and materials prices rise as a result. Such shocks typically take several years to play themselves out completely. I apply a downsized version of a macroeconomic forecasting model in use at the Cleveland Fed to project the likely quantitative impact of the shocks on GDP growth and consumer prices.</p> Read More

  • Raising the College Degree Share: How Nongraduates Figure Into It


    Stephan D. Whitaker

    Abstract

    <p>In their search for strategies to spur economic development, one statistic civic leaders and researchers invariably use to identify the cities to emulate is the share of college graduates. That is because the college degree share of a region is highly correlated with its economic performance. But too narrow a focus on the graduates can lead to misguided policies. A more thorough analysis suggests that the reason some areas pull ahead and some fall behind in their college degree shares may be due to trends in nongraduate population growth that regional leaders either cannot or would not directly address with public policies.</p> Read More

  • Do Commodity Prices Signal Inflation?


    Owen F. Humpage

    Abstract

    <p>Do the rising commodity prices we have seen in recent years reflect basic supply-and-demand developments in various commodity markets, or are they the first signs of inflation? In practice, it&amp;rsquo;s not always easy to tell the difference&mdash;for the public or policymakers&mdash;but fundamentally different they are. Central banks can do nothing about relative commodity-price pressures, since central banks do not produce commodities. Likewise, commodity-price shocks do not impair the ability of central banks to control inflation in principle, but they can greatly complicate the task.&nbsp;</p> Read More

  • Demographic Differences in Inflation Expectations: What Do They Really Mean?


    Brent Meyer Guhan Venkatu

    Abstract

    <p>It has often been reported that different demographic groups show persistent differences in their inflation expectations. Some reasonable explanations have been suggested, but most have failed to fully explain these apparent differences. We argue that the demographic differences have been overstated by using the mean to describe differences across demographic groups. When we use the median to describe inflation expectations, we find little meaningful difference across demographic groups.&nbsp;</p> Read More

  • Buy a Home or Rent: A Better Way to Choose


    O. Emre Ergungor Saeed Zaman

    Abstract

    <p>Knowing whether buying a home is a better financial move for a family than renting requires a consideration of costs and options that people often neglect to factor in. One aspect of the calculation that is almost always overlooked is uncertainty&mdash;the fact that no matter how good one&rsquo;s estimates of the future are, the future can turn out differently than projected. Incorporating uncertainty into the rent-or-buy calculation gives potential homebuyers information that can improve their decisions. While incorporating uncertainty is complicated, it&rsquo;s made easier with the Cleveland Fed&rsquo;s online calculator.</p> Read More

  • Household Balance Sheets and the Recovery


    Timothy Bianco Filippo Occhino

    Abstract

    <p>Falling home and financial asset prices have combined to weaken the average household&rsquo;s balance sheet, and this has helped to slow down the current recovery. We examine the role that household balance sheets have typically played in postwar business cycles and assess their importance in explaining why some recoveries, including the current one, have been weaker than others.</p> Read More

  • The Great Recession’s Effect on Entrepreneurship


    Scott Shane

    Abstract

    <p>&nbsp;</p> Read More

  • Homeowner Subsidies


    O. Emre Ergungor

    Abstract

    <p>Though some programs that were created to promote homeownership in the United States, like Fannie Mae and Freddie Mac, have been harshly criticized in the wake of the housing crisis, we are likely to continue to provide some form of taxpayer-funded assistance to those who would become homeowners. Historically, assistance has taken the form of either interest rate or down-payment subsidies, but recent research suggests that down-payment subsidies are much more effective. They create successful homeowners&mdash;homeowners who keep their homes&mdash;at a lower cost.</p> Read More

  • High Unemployment after the Recession: Mostly Cyclical, but Adjusting Slowly


    Murat Tasci

    Abstract

    <p>&nbsp;</p> Read More

  • An End to Too Big to Let Fail? The Dodd–Frank Act’s Orderly Liquidation Authority


    Thomas J. Fitzpatrick IV James Thomson

    Abstract

    <p> One of the changes introduced by the sweeping new financial market legislation of the Dodd&ndash;Frank Act is the provision of a formal process for liquidating large financial firms&mdash;something that would have been useful in 2008, when troubles at Lehman Brothers, AIG, and Merrill Lynch threatened to damage the entire U.S. financial system. While it may not be the end of the too-big-to-fail problem, the orderly liquidation authority is an important new tool in the regulatory toolkit. It will enable regulators to safely close and wind up the affairs of those distressed financial firms whose failure could destabilize the financial system.</p> Read More