Economic Commentary
Providing you with in-depth analysis of current economic and financial issues.
1997
- December 1997
- Do More Banking Offices Mean More Banking Services?
- It is tempting to look at the recent growth in the number of banking offices as evidence that industry consolidation has not meant a deterioration in banking services. However, much of this expansion can be traced to thrift conversions and the growth of supermarket branching. An examination of state-by-state data reveals that higher banking office growth does not necessarily imply higher growth in small business lending, one banking service of particular concern to smaller markets and poorer communities. (PDF)
- November 1997
- Accelerating Money Growth: Is M2 Telling Us Something?
- In the late 1970s and early 1980s, the FOMC built its fight against inflation around monetary targeting. The monetary aggregates’ role in the policymaking process was downgraded in the early 1990s, when M2’s velocity began to rise much more quickly than past experience would have predicted. Although evidence is accumulating that M2 has now stabilized into a pattern more consistent with its historical performance, the data are too limited to recommend a resumption of monetary targeting. But ignoring the sharp acceleration in M2 over the last year and a half would be equally unwise. (PDF)
- October 15, 1997
- On the origin and evolution of the word inflation
- A historical look at the origin and uses of the word inflation, arguing that although the term has become nearly synonymous with "price increase," its original meaning--a rise in the general price level caused by an imbalance between the quantity of money and trade needs--is the definition driving many of those who advocate an anti-inflation policy for the Federal Reserve. (PDF)
- October 1, 1997
- Bad Standards
- The measurement standards that we take for granted today, such as for weight, length, time, and temperature, were not always so exact. Over the years, we have come to appreciate the importance of maintaining consistent standards in our measurement of these and other subjective phenomena. Why, then, do we not demand the same rigorous adherence to a standard when it comes to our measure of value - the dollar? We should." (PDF)
- September 15, 1997
- The dark side of liquidity
- A look at the disadvantages of a firm’s having too much liquidity, explaining that when a company has a great deal of its worth tied up in liquid assets, it has a harder time attracting investors, who must be convinced that the firm’s managers will not “take the money and run.” (PDF)
- September 1, 1997
- Money, Fiscal Discipline, and Growth
- European Monetary Union’s full potential will be realized only if the supra-national monetary authority ensures a stable currency and safeguards the financial system’s integrity. Uncoupling monetary from fiscal policymaking will impose severe constraints on member nations’ fiscal policies. Collectively unsound fiscal policies may compromise the ability to maintain a stable currency and erode prospects for economic growth. (PDF)
- August 15, 1997
- Wage inflation and worker uncertainty
- Compares two possible explanations of why pay increases continue to be moderate in a vigorous labor market--workers’ uncertainty about their jobs and human resource managers’ wage-setting behavior--and looks at how each explanation matches the evidence on the timing of inflation and wage changes. (PDF)
- August 1, 1997
- Wealth, Economic Infrastructure, and Monetary Policy
- Why are some countries rich and others poor? The simple answer—that rich countries have more resources per capita—merely begs another question: Why are some countries more successful in accumulating resources? Often overlooked is the state’s role in promoting the development of an “economic infrastructure.” It’s not the specific “growth” programs that governments enact which determine a nation’s prosperity, but the totality of the state’s attitude toward the accumulation of private wealth, including the central bank’s management of a nation’s money. (PDF)
- July 1997
- TIPS for Safer Investing
- Treasury Inflation-Protection Securities, or TIPS, are the first U.S. government securities guaranteed to provide riskless, long-term protection against unexpected inflation. Benchmarked against changes in the Consumer Price Index, TIPS should attract various types of investors, including those who do not want to risk their money in the stock market, those who need to draw on their investment while preserving their principal, and small investors who might not otherwise be able to shelter their savings from inflation’s ill effects. Read more
- June 1997
- Monetary policy in the cold war era
- An explanation of why, in the face of a booming economy, low unemployment, and scant inflation pressures, the Federal Reserve must continue its campaign to achieve price stability. Read more
- May 15, 1997
- Okun’s law revisited: should we worry about low unemployment?
- A review of the connection between labor resource utilization and the growth&endash;unemployment correlation summarized by Okun’s law, showing that the instability of that relationship, particularly over short time horizons, has important implications for monetary policy. Read more
- May 1, 1997
- Is noninflationary growth an oxymoron?
- A review of the theoretical and empirical case for disinflationary economic growth, showing that, contrary to popular wisdom, it is quite possible to have a booming economy without an acceleration in the price level. Read more
- April 15, 1997
- Where Have All the Tellers Gone?
- An examination of why, in the face of record earnings and ever-increasing demand for their products and services, banks are trimming their payrolls. The article also examines the fate of the job losers, as well as the banking industry’s tremendous ability to weather major technological and structural changes. Read more
- April 1, 1997
- Medicare: Usual and Customary Remedies Will No Longer Work
- A description of the structural deficiencies that have led to Medicare’s impending bankruptcy, and a discussion of the merits of alternative approaches to extending the program’s long-term viability. The author argues that the best approach is to adopt a "defined contribution" plan that will restore consumers’ interest in economizing on health care services and boost competition among providers and insurers. Read more
- March 15, 1997
- PMI Reform: Good Intentions Gone Awry
- Congress is currently considering legislation intended to make private mortgage insurance more fair and affordable for homeowners. Unfortunately, as with many well-intentioned interventions into private markets, this legislation could actually hurt the very borrowers it is intended to help by restricting the availability of mortgage loans and making them more costly. Read more
- March 1, 1997
- Maintaining a Low Inflation Environment
- An examination of monetary policy actions before and after 1982, illustrating that prompt federal funds rate increases aimed at maintaining a low inflation environment are associated with subsequent robust economic growth, not with weak growth, as is commonly thought. Read more
- February 15, 1997
- Structural reform of the Social Security system: the time has come
- An argument that any successful reform of the Social Security system must 1) result in more real investment, 2) restore individuals’ incentives to work, and 3) reduce or eliminate the intergenerational redistribution that leads to low national saving. Read more
- February 1, 1997
- Information dynamics and CRA strategy
- A look at how the quantity and source of information flowing to lenders can affect their credit decisions, and an argument that lenders should take advantage of the CRA provisions that allow them to address their obligations through joint-lending programs and qualified investments. Read more
- January 15,1997
- Stock market fundamentals
- An explanation of the primary factors driving stock market fundamentals and an examination of how well those factors explain—or fail to explain—current market trends. Read more
- January 1, 1997
- The Hidden Costs of Mexican Banking Reform
- Observers acknowledge that improvements in Mexico’s economic conditions hinge on the latest banking reforms being successful but not too costly. However, the ultimate cost of the reform efforts will depend on monetary policy restraint and behavioral responses to the reforms. If interest rates are lowered to help the banks, or if banks expect continued government assistance, the final cost could easily exceed recent estimates. Read more