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2019 Economic Commentaries

  • Changing Policy Rule Parameters Implied by the Median SEP Paths


    Edward S. Knotek II

    Abstract

    This <em>Commentary</em> estimates the implied parameters of simple monetary policy rules using the median paths for the federal funds rate and other economic variables provided in the Federal Open Market Committee&rsquo;s Summary of Economic Projections (SEP). The implied policy rule parameters appear to have changed over time, as the federal funds rate projections have become less responsive to the unemployment gap. This finding could reflect changes in policymakers&rsquo; preferences, uncertainty over other aspects of the policy rule, or limitations of estimating simple monetary policy rules from the median SEP paths. Read More

  • Residual Seasonality in GDP Growth Remains after Latest BEA Improvements


    Victoria Consolvo Kurt G. Lunsford

    Abstract

    Measuring economic growth is complicated by seasonality, the regular fluctuation in economic activity that depends on the season of the year. The BEA uses statistical techniques to remove seasonality from its estimates of GDP, but some research has indicated that seasonality remains. As a result, the BEA began a three-phase plan in 2015 to improve its seasonal-adjustment techniques, and in July 2018, it completed phase 3. Our analysis indicates that even after these latest improvements by the BEA, residual seasonality in GDP growth remains. On average, this residual seasonality makes GDP growth appear to be slower in the first quarter of the year and more rapid in the second quarter of the year. Rapid second-quarter growth is particularly noticeable in recent years. As a result, business economists and policymakers may want to take seasonality into account when using GDP to assess the health of the economy. Read More

  • Custom Comparison Groups in the Integrated Postsecondary Education Data System


    Peter L. Hinrichs

    Abstract

    This Economic Commentary studies the behavior of colleges when they are asked to list a set of comparison group colleges in annual data reporting for the US Department of Education but are given little direction on how to do so. I find that, relative to themselves, colleges tend to list for comparison colleges that are more selective, are larger, and have better resources. One possible interpretation of these findings is that colleges overestimate where they stand relative to others, although an alternative interpretation is that colleges have accurate views but list comparison institutions based on aspirations. Read More

  • What Is Behind the Persistence of the Racial Wealth Gap?


    Dionissi Aliprantis Daniel R. Carroll

    Abstract

    Most studies of the persistent gap in wealth between whites and blacks have investigated the large gap in income earned by the two groups. Those studies generally concluded that the wealth gap was “too big” to be explained by differences in income. We study the issue using a different approach, capturing the dynamics of wealth accumulation over time. We find that the income gap is the primary driver behind the wealth gap and that it is large enough to explain the persistent difference in wealth accumulation. The key policy implication of our work is that policies designed to speed the closing of the racial wealth gap would do well to focus on closing the racial income gap. Read More

  • Do Longer Expansions Lead to More Severe Recessions?


    Murat Tasci Nicholas Zevanove

    Abstract

    We are now in one of the longest expansions on record. The recession that preceded that expansion was one of the worst in history. Are those two facts related? Some economists suggest they are, while others suggest it’s the other way around: Longer expansions lead to more severe recessions. We assess the evidence for these two hypotheses. We find clear evidence for the former and little for the latter. Deeper recessions are often followed by stronger recoveries, while longer and stronger expansions are not followed by deeper recessions. Read More

  • Asset Commonality in US Banks and Financial Stability*


    Jan-Peter Siedlarek Nicholas Fritsch

    Abstract

    One potential threat to a stable financial system is the phenomenon of contagion, where a risk that is ordinarily small becomes a problem because of the way it spreads to other institutions. Researchers have investigated multiple channels through which contagion might occur. We look at two--banks borrowing from each other and banks holding similar types of assets--and argue that the latter is a potential source of systemic risk. We review recent data on asset concentrations and capitalization levels of the largest US banks and conclude that the overall risk from this particular contagion channel is at present likely limited. Read More