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2013 Economic Commentaries

  • When Might Federal Funds Rate Lift Off?

    Edward S. Knotek II Saeed Zaman


    The Federal Open Market Committee has been providing guidance to help markets anticipate when it will begin raising the federal funds rate target. The most recent guidance suggests that the target will not change at least until after an unemployment or inflation threshold is breached. We use a forecasting model to estimate when these thresholds are likely to be breached. We also consider how an inflation floor would affect the timing of liftoff. Read More

  • Population Distribution and Educational Attainment within MSAs, 1980-2010

    Kyle Fee


    Though most people in the US live in metropolitan areas, they’ve been choosing to live farther and farther from the center of those areas since the 1950s. While that trend continues to this day, there are some dramatic changes. The exodus from the center of town is slowing down quite a bit, for one. For another, those residents who now live in the central city are better educated than they used to be. Read More

  • The Employability of Returning Citizens is Key to Neighborhood Revitalization

    O. Emre Ergungor Nelson Oliver


    One problem low-income communities may face in trying to revitalize is dealing with a high share of residents who are returning home after serving prison terms. Returning citizens often concentrate in low-income areas, and they typically lack the education and skills needed to find jobs. This Commentary reviews these and other barriers to employment, estimates the degree of unemployment, and describes some solutions emerging for this population. Read More

  • Improving Inflation Forecasts in the Medium to Long Term

    Saeed Zaman


    A simple but powerful technique for incorporating a changing underlying inflation trend into standard statistical time series models can improve forecast accuracy significantly—about 20 percent to 30 percent, two to three years out. Read More

  • Forecasting Implications of the Recent Decline in Inflation

    Todd E. Clark Saeed Zaman


    Should the unanticipated slowing of inflation that has occurred since early 2012 raise doubts about the reliability of inflation forecasts? Our analysis indicates that inflation fell well within a normal range of uncertainty, and most of the deviation from the original forecast was a response to other economic developments. Read More

  • The Surprising Impact of High School Math on Job Market Outcomes

    Jonathan James


    The economic returns to education are well documented. It is also well-known that college graduates with certain majors will earn more than others and find it easier to land a job. But surprisingly, the courses students take in high school also make a difference, when the courses are mathematics. Even among workers with the same level of education, those with more math have higher wages on average and are less likely to be unemployed. These findings suggest that even students ending their formal education after high school can increase their future earnings by investing in more math courses while in high school. Read More

  • The Limitations of Foreign-Exchange Intervention: Lessons from Switzerland

    Owen F. Humpage


    Since the mid-1990s, monetary authorities in most large developed countries have backed away from foreign-exchange intervention—buying and selling foreign currencies to influence exchange rates. Switzerland's recent experience goes a long way to illustrate why: Foreign-exchange intervention did not afford the Swiss National Bank with a means of systematically affecting the franc independent of Swiss monetary policy, and it left the Bank exposed to foreign-exchange losses. To affect exchange rates, central banks must change their monetary policies. Read More

  • Are Households Saving Enough for a Secure Retirement?

    LaVaughn Henry


    The recent rise in the personal saving rate has been interpreted as a sign that consumers are paying down their debt and repairing the damage done to their nest eggs. But a close analysis suggests that many people are falling short of saving what they will need to maintain their standard of living in retirement. A growing body of research in behavioral economics, a branch of economics that studies the choices people make at the individual level, offers explanations for why that is, as well as new approaches to the problem. Read More

  • Housing Recovery: How Far Have We Come?

    Kyle Fee Daniel Hartley


    Four years into the economic recovery, housing markets have finally started to improve. While many indicators of activity indicate recent growth, comparing over time and across the United States suggests that many regional housing markets are looking better now only in comparison to where they were during the recession. The recovery in housing markets does appear to be gaining steam, but it remains a work in progress in many places. Read More

  • Why Small Business Lending Isn’t What It Used to Be

    Ann Marie Wiersch Scott Shane


    Since the Great Recession, bank lending to small businesses has fallen significantly, and policymakers have become concerned that these businesses are not getting the credit they need. Many reasons have been suggested for the decline. Our analysis shows that it has multiple sources, which means that trying to address any single factor may be ineffective or make matters worse. Any intervention should take all of the many causes of the decline in small business lending into consideration. Read More

  • Keeping the House or Moving for a Job

    Yuliya Demyanyk Dmytro Hryshko María José Luengo-Prado Bent Sørensen


    Some reports have suggested that employers can't fill job openings in some places because they can't entice workers to move. Workers won't move, so the story goes, when doing so will mean losing money on their homes, and this is the case for many homeowners since the housing crash. But new research shows that homeowners will move when they have a better job offer, even if they will lose money on their home when they sell it. Read More

  • Monetary Policy Tightening and Long-Term Interest Rates

    Pedro Amaral


    The Federal Open Market Committee (FOMC) has maintained an accommodative monetary policy ever since the 2007 recession, and some financial market participants are concerned that long-term interest rates may increase more than should be expected when the Committee starts to tighten. But a look at five historical episodes of monetary policy tightening suggests that such an outcome is more likely when markets are surprised by policy actions or economic developments. Given the Fed's new policy tools, especially its evolution toward more transparent communications, the odds of a surprise are far less likely now. Read More

  • What Constitutes Substantial Employment Gains in Today's Labor Market?

    Mark E. Schweitzer Murat Tasci


    The Federal Open Market Committee (FOMC) has tied its asset purchases to a "substantial improvement" in labor market conditions. While we don't speculate on what the FOMC means by substantial improvement, we do explore the level of monthly job gains that would gradually deliver the underlying trend unemployment rate within a reasonable timeframe, under several plausible scenarios. We find that the path of monthly job gains, which is highly dependent on a few key parameters, is likely to be smaller than the path associated with previous recoveries. Read More

  • Urban Decline in Rust-belt Cities

    Daniel Hartley


    Many Rust-Belt cities have seen almost half their populations move from inside the city borders to the surrounding suburbs and elsewhere since the 1970s. As populations shifted, neighborhoods changed—in their average income, educational profile, and housing prices. But the shift did not happen in every neighborhood at the same rate. Recent research has uncovered some of the patterns characterizing the process. Read More

  • Forecasting Inflation? Target the Middle

    Brent Meyer Guhan Venkatu Saeed Zaman


    The Median CPI is well-known as an accurate predictor of future inflation. But it's just one of many possible trimmed-mean inflation measures. Recent research compares these types of measures to see which tracks future inflation best. Not only does the Median CPI outperform other trims in predicting CPI inflation, it also does a better job of predicting PCE inflation, the FOMC's preferred measure, than the core PCE. Read More

  • Why Are Interest Rates So Low?

    Joseph G. Haubrich


    Interest rates have been at historical lows for some time now. There are many possible reasons why that is so. We make use of recent work done at the Federal Reserve Bank of Cleveland that allows us to look at individual components of interest rates and see which are exerting the biggest influence. Knowing why rates are where they are now helps to predict where interest rates will likely be in the near future. Read More

  • Are We Like Sweden? Recovery in the Labor Market

    O. Emre Ergungor


    More than 20 years ago Sweden suffered a severe financial crisis that brought unemployment to an all-time high. To this day the unemployment rate has not returned to where it was before the crisis. Economists say that if the U.S. is anything like Sweden, our full recovery may still be a long way off. Sweden is like the U.S. in many ways, but the roots of its labor market troubles appear to be very different from ours. Read More

  • Monetary Policy: From There to Here to Where?

    Mark Sniderman


    Drawing from his long experience participating in the policymaking process at the Federal Reserve, chief policy officer Mark Sniderman shares his views on how the Federal Reserve's framework for conducting monetary policy has evolved over the past decade. He explains how changes in economic theory have helped shaped this new framework and how lessons learned from the Great Depression and Japan's recent struggle with deflation have contributed. This Commentary is based on a speech delivered at the Global Interdependence Conference, Tokyo, Japan, on December 4, 2012. Read More

  • The Concentration of Poverty Within Metropolitan Areas

    Dionissi Aliprantis Kyle Fee Nelson Oliver


    Not only has poverty recently increased in the United States, it has also become more concentrated. This Commentary documents changes in the concentration of poverty in metropolitan areas over the last decade. The analysis shows that the concentration of poverty tends to be highest in northern cities, and that wherever overall poverty or unemployment rates went up the most over the course of the decade, the concentration of poverty tended to increase there as well. Read More