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Economic Synopses

Short essays on the economic issues of the day written for a generally informed readership.

2009, No. 47

The Case for “Inflation First” Monetary Policy

Policymakers should not think of price stability and economic stability as competing objectives but as complements—the best way to achieve the latter is to be firmly committed to achieving the former.


2009, No. 46

Personal Saving and Economic Growth

Many analysts fear that a rising saving rate could hamper the economic recovery.


2009, No. 45

Has the Recent Real Estate Bubble Biased the Output Gap?

We offer a word of caution to policymakers: Policies based on point estimates of the output gap may not rest on solid ground.


2009, No. 44

Vacancies and Unemployment

Expansions are usually associated with plentiful vacancies and a low number of unemployed workers. During recessions the unemployment pool swells while employers seek to fill fewer job openings.


2009, No. 43

International Trade Integration and Business Cycle Synchronization

The changes in international trade and finance are linked to the changes in business cycle correlations.


2009, No. 42

Home Prices: A Case for Cautious Optimism

Many analysts are cautiously optimistic that the house price decline has ended, citing that house prices increased in June and July. There are several reasons for being cautious.


2009, No. 41

Monetary Policy Stance: The View from Consumption Spending

We should expect a third business cycle in succession in which the real federal funds rate reaches its trough well after the economy begins to recover.


2009, No. 40

Is the Financial Crisis Over? A Yield Spread Perspective

Our finding is consistent with some recent, substantial volatility in the U.S. corporate bond market and leaves open a possibility that additional, future shocks to default premia may have long-lived effects.


2009, No. 39

The Financial Services Sector: Boom and Recession

The fluctuations in home construction (and prices) have been widely discussed, but swings in the financial services sector also are important elements of economic activity within U.S. states.


2009, No. 38

How Not to Reduce Excess Reserves

Experience demonstrates that raising reserve requirements is surely not the best way to eliminate excess reserves.


2009, No. 37

Would Quantitative Easing Sooner Have Tempered the Financial Crisis and Economic Recession?

Would financial markets and the economy have been better off if the Fed pursued a policy of quantitative easing sooner?


2009, No. 36

Commercial Bank Lending Data during the Crisis: Handle with Care

Caution is necessary when making inferences based solely on aggregate loans data.


2009, No. 35

World Trade: Pirated by the Downturn

A post-World War II record decline in world trade is likely in 2009.


2009, No. 34

Examining the Housing Crisis by Home Price Tier

When broken down by price level—high-priced, mid-priced, and lower-priced homes—the housing boom and subsequent implosion affected each tier differently.


2009, No. 33

U.S. Migration Over the Life Cycle

Migration incentives for working-age and retired individuals are quite different and are sensitive to the level of human capital within the family.


2009, No. 32

What Caused Long-Term Rates to Rise?

The marked rise in longer-term rates is reflected in a rise in both real rates and expectations for inflation.


2009, No. 31

Asset Prices and Their Effect on the U.S. Trade Balance

Pronounced cycles and booms in asset prices have usually accompanied widening trade deficits.


2009, No. 30

Negating the Inflation Potential of the Fed's Lending Programs

The sale of typical securities would force the Fed to contract its lending programs, whereas the sale of Fed bills would not.


2009, No. 29

Uncertainty About When the Fed Will Raise Interest Rates

It’s hard to make a firm prediction as to when the Fed will raise interest rates.


2009, No. 28

Dating the End of the Recession: Evaluating the Economic Indicators

Economists focus on certain indicators that might signal when one business expansion ends and the next one begins.


2009, No. 27

The U.S. Financial Sector's Value Added: Trends Now and Then

The U.S. financial growth between 1995 and 2006 certainly translated into record-high shareholder returns. Labor compensation returns were also dramatically high at the onset of the current crisis.


2009, No. 26

Taming the Long-Term Spreads

Given the size of the underlying markets, cutting the cost of capital to firms and households by reducing the yields required on long-term corporate bonds and mortgages is a key policy objective.


2009, No. 25

The Effect of the Fed’s Purchase of Long-Term Treasuries on the Yield Curve

Chairman Bernanke seems to suggest that the purchase of a large quantity of longer-term government securities might reduce longer-term rates.


2009, No. 24

What the Libor-OIS Spread Says

“Libor-OIS remains a barometer of fears of bank insolvency.”


2009, No. 23

Lending Standards in Mortgage Markets

While the data seem to suggest that lenders did the right thing by tightening standards and increasing denials...the ongoing financial crisis suggests that they did not tighten them enough.


2009, No. 22

The Global Recession unusually high percentage of the world’s large countries and major U.S. trading partners are currently experiencing a recession.


2009, No. 21

Can Monetary Policy Affect GDP Growth?

We merely want to see whether, historically, fast growth of the monetary base has been associated with faster growth of real output.


2009, No. 20

What’s Under the TARP?

The Financial Stability Plan, initiated under the belief that “[t]here is more risk and greater cost in gradualism than in aggressive action,” has several features.


2009, No. 19

Recession or Depression? Part II

“The economic performance during the current recession is sharply different from the 1929-33 episode in most key respects, but not in all...”


2009, No. 18

The Success of the CPFF?

“The CPFF is regarded as a hallmark of success among credit-easing policies.”


2009, No. 17

Household Retrenchment

“Economic misfortunes have caused many to reassess their finances, triggering sharp reversals in borrowing and spending habits.”


2009, No. 16

British Banking in Crisis

“The root of the problems of the British banks is the same as that of American banks: shaky mortgage-backed securities.”


2009, No. 15

Recession or Depression?

“Although the current recession may… be the longest in the postwar period, it is by no means certain that it will be the deepest, but it’s increasingly looking that way.”


2009, No. 14

Bankers Acceptances and Unconventional Monetary Policy: FAQs

“Here, I answer selected questions asked by readers of my earlier essay.”


2009, No. 13

Federal Reserve Assets: Understanding the Pieces of the Pie

“One way to examine the composition of assets on the Fed’s balance sheet is to group them according to the objectives of the programs used to acquire them.”


2009, No. 12

Recent Movements in the Baltic Dry Index

“The BDI can be viewed as the equilibrium price of shipping raw materials, determined by the supply of cargo ships and the demand for transporting raw materials by ship.”


2009, No. 11

Putting the Financial Crisis and Lending Activity in a Broader Context

“Banks typically tighten credit standards and/or loan terms as the economy weakens and nonperforming loans increase. But an adverse shock from outside the financial sector can be just as important—such as a sharp increase in oil prices or a plunge in house prices.”


2009, No. 10

Resolving a Banking Crisis, the Nordic Way

“The Nordic bank resolution is widely regarded as among the most successful in history.”


2009, No. 9

How Accurate Are Forecasts in a Recession?

“On average, professional forecasters have tended to be less accurate when the U.S. economy was in recession.”


2009, No. 8

Markets Worry More about Sovereign Debt

"Market perceptions of sovereign default risk have risen recently."


2009, No. 7

Bagehot on the Financial Crises of 1825…and 2008

“Bagehot’s principal message is that the first task of a central bank during a financial panic is to end the panic.”


2009, No. 6

The Fed’s Response to the Credit Crunch

“The Federal Reserve Board has used Section 13(3) of the Federal Reserve Act to create several new lending facilities to address the ongoing strains in the credit market.”


2009, No. 5

Bankers’ Acceptances: Yesterday’s Instrument to Restart Today’s Credit Markets?

“A bankers’ acceptance is created when a bank agrees to ‘accept,’ or guarantee, a future payment between two firms.”


2009, No. 4

The Current Recession: How Bad Is It?

“In a recession, the severity of the decline is just as relevant as the duration of the recession.”


2009, No. 3

Gross Credit Flows of U.S. Commercial Banks until 2008:Q3

“The first two quarters of 2008 show sharply decreased expansion and increased contraction, followed by a third-quarter rebound.”


2009, No. 2

A Perspective on the Current Recession: It’s Not the “Worst Case” Yet

“The current recession actually looks relatively mild, so far, when we look at the decline in industrial production.”


2009, No. 1

Is There Less Agreement About Inflation?

“Agreement about current-year CPI inflation for 2008 began to deteriorate about midyear.”


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