Economic Commentary
Providing you with in-depth analysis of current economic and financial issues.
1999
- December 1999
- The Exchange Stabilization Fund: How It Works
- The increasingly controversial Exchange Stabilization Fund is used to influence the international value of the U.S. dollar and to provide aid to foreign countries. The debate surrounding the Fund will become more informed, the authors suggest, when observers understand how to calculate the total amount of resources available to the Fund. This Economic Commentary explains how the Fund’s balance sheet figures must be adjusted to produce an accurate account of those resources. (PDF)
- November 1999
- Forecasts and Sunspots: Looking Back for a Better Future
- To head off inflation before it gets started, central banks must use forecasts. But using forecasts to determine monetary policy actions introduces the possibility that inflation will increase just because the public expects it to. This Economic Commentary explains how random events—sunspots—can affect economic systems and lead to volatility in prices. The authors suggest that sunspots can be avoided with an approach that responds predominantly to past, rather than predicted, inflation. (PDF)
- October 15, 1999
- Are We in a Productivity Boom? Evidence from Multifactor Productivity Growth
- Increased productivity could be the key to preserving robust, noninflationary GDP growth. But what is the best measure of productivity? This Economic Commentary explores the relationship between labor productivity and multifactor productivity, a measure that accounts for factors other than technological improvement. It concludes that MFP provides a better measure of productivity due solely to technical change. (PDF)
- October 1, 1999
- Financial Crises and Market Regulation
- Financial crises typically arise from risk mismanagement by governments. Usually with the most sincere and honorable of intentions, governments seek to reduce or eliminate the exposure to risk of some constituent. But risk cannot be eliminated, it can only be redistributed. Jerry L. Jordan, president and chief executive officer of the Federal Reserve Bank of Cleveland, recently discussed this problem when he spoke at the Eighth Annual Financial Markets Conference sponsored by the Federal Reserve Bank of Atlanta. This Economic Commentary is adapted from his remarks. (PDF)
- September 15, 1999
- Dollarization and Monetary Sovereignty: The Case of Argentina
- In January, President Menem of Argentina proposed strengthening his country’s commitment to monetary stability by replacing the peso with the U.S. dollar. Dollarization leaves Argentina without a lender of last resort, but the Federal Reserve’s current operating procedure, together with existing Argentine arrangements, mitigates this drawback. (PDF)
- September 1, 1999
- Growth and the Internet: Surfing to Prosperity?
- Do countries that inhibit the quick integration of new technologies pay a price in slower economic growth? This Commentary suggests they do. Focusing on the level of Internet use to indicate the absorption rate of emerging computer technologies, the authors argue that faster technology absorption leads to increased economic growth. (PDF)
- August 15, 1999
- The Recent Ascent in Stock Prices: How Exuberant Are You?
- Soaring stock prices continue to pit those who claim that investors are paying too much against those who believe stocks are worth even more. Prices of stocks are determined by people’s perceptions of worth, which are themselves based on expectations for the future Although we cannot be sure whether the market is over- or undervalued, we can clarify the factors that determine stock prices and discover the assumptions underlying our expectations. Assessing the consistency of these assumptions may help keep our exuberance in check. (PDF)
- August 1, 1999
- Money Growth and Inflation: How Long is the Long Run?
- In their efforts to maintain low inflation, policymakers currently pay relatively little attention to the growth rate of the money supply. Yet many studies have found a close relationship between money growth and inflation, at least in the long run. But how long must money growth be strong before it should be of concern to policymakers? That is, what is the shortest period of time over which money growth seems to be reliably associated with inflation? (PDF)
- July 1999
- Resisting Electronic Payment Systems: Burning Down the House?
- This commentary explains the phenomena of path dependence, hysteresis, and network economies using lively historical and contemporary examples. The author shows how the path dependence and network economies can interact to produce a variety of undesirable ends—inefficient payment systems, the adoption of inferior technology, or disasters like the 1834 fire that destroyed the British House of Lords. (PDF)
- June 1999
- Measuring Total Employment: Are Few Million Workers Important?
- How can we measure total employment in the economy? The Bureau of Labor Statistics provides two different—and sometimes contradictory—measures of this key indicator. During the 1990s, the gap between the two measures has widened to more than five million workers. This Economic Commentary examines the current discrepancy between the two measures of employment and explores its significance in interpreting our economy’s health. (PDF)
- May 15, 1999
- Mortgage Brokers and Fair Lending
- Mortgage brokers play an important role in the housing-finance market, but they also present unique challenges to regulators attempting to enforce fair-lending laws. Should lenders be held responsible for the pricing decisions of brokers from whom they receive loan applications, or should fair-lending laws instead be applied directly to the brokers themselves? (PDF)
- May 1, 1999
- The Truth about Hedge Funds
- Do hedge funds help or hurt the financial markets in which they operate? The highly publicized troubles of Long Term Capital Management have once again focused the attention of policymakers and the press on the hedge fund industry and the cry for its regulation. This Economic Commentary refutes some of the commonly held myths about hedge funds and examines the rationale for regulating them. (PDF)
- April 15, 1999
- Money Growth and Inflation: Does Fiscal Policy Matter?
- Is inflation (in the often-quoted words of Milton Friedman) “always and everywhere a monetary phenomenon”? Some say no, arguing that inflation is controlled not only by the central bank but also by the fiscal authority. This Commentary authors explore their argument, known as the fiscal theory of the price level. (PDF)
- April 1, 1999
- Fixing Social Security: Is the Surplus the Solution?
- It may seem an attractive proposal—the Administration’s plan of using projected budget surpluses to restore Social Security’s finances—but it obscures the real trade-off we face in tackling this problem. The proposal is essentially a change in the accounting treatment of surpluses, deficits, and debt held by the public and in the Social Security Trust Fund. It would in no way alter the fundamental imbalance that afflicts the nation’s most basic pension program. (PDF)
- March 15, 1999
- The Challenge of Stability: Mexico’s Pursuit of Sound Money
- How can Mexico best achieve a stable standard of value and, hence, sound money? Jerry L. Jordan, president and chief executive officer of the Federal Reserve Bank of Cleveland, explored this question in his address to the DUXX Graduate School of Business Leadership at its Forum on Public Policy in Monterrey, Mexico. This Economic Commentary is adapted from his remarks. (PDF)
- March 1, 1999
- How Much of Economic Growth is Fueled by Investment-Specific Technological Progress?
- Discovering how economies grow is vitally important for economists and policymakers alike. This Commentary shows that more than half of U.S. economic growth can be attributed to technological advance in equipment and structures. (PDF)
- February 15, 1999
- Construction and Monetary Policy: A View from the Sidelines
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- February 1, 1999
- Will Increasing the Minimum Wage Help the Poor?
- If enacted, the Fair Minimum Wage Act of 1999 would raise the minimum wage an additional dollar over the next two years. But does the minimum wage really benefit the low-income families it purports to help? (PDF)
- January 15, 1999
- Bringing the Unbanked Onboard
- Changes in government policy have required a new look at how the unbanked population can be served by both traditional and nontraditional financial institutions. In this regard, banks must continue to gear products and services around the needs and concerns of this substantial market segment in order to win these potential customers over. (PDF)
- January 1, 1999
- The Euro
- In January 1999, the new European Central Bank began manufacturing a new money-the euro-and took over the operations of 11 nations’ monetary systems. This Commentary outlines the ECB’s institutions and operations, exploring some of the political economy issues that face the new central banking arrangement. (PDF)