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Economic Synopses

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

2010, No. 38

When Do Recessions Begin and End?

With the funds rate driven to levels far below its target, the FOMC had no recourse but to adjust the target accordingly.


2010, No. 37

Unemployment and the Role of Monetary Policy

On balance, the figure suggests that structural unemployment during economic downturns has increased since 1991.


2010, No. 36

Monetary Policy and Longer-Term Rates: An Opportunity for Greater Transparency

The FOMC’s two-pronged approach involves a potential conflict: forward guidance assumes a high degree of substitutability across the maturity structure, while quantitative easing assumes a low degree.


2010, No. 35

Mortality Rates and the Business Cycle

Mortality rates no longer rise sharply in recessions.


2010, No. 34

The Downside of Quantitative Easing

Current excess reserves could create a massive increase in the money supply if banks significantly increase their lending or investing.


2010, No. 33

Is the Fed’s Definition of Price Stability Evolving?

The FOMC’s "mandate-consistent inflation rate" is generally judged to be "about 2 percent or a bit below."


2010, No. 32

Japan Reenters the Foreign Exchange Market

From 1999 to 2004 Japan unilaterally sold a combined, and unprecedented, 500 billion dollars of yen.


2010, No. 31

Is More QE in Sight?

Most analysts have concluded that the LSAP successfully reduced long-term market interest rates. How, exactly, do LSAP-style programs succeed?


2010, No. 30

U.S. Historical Experience with Deflation

The severe contractions and deflationary episodes that followed 19th century U.S. banking crises have shaped the U.S. perception of deflation.


2010, No. 29

Would QE2 Have a Significant Effect on Economic Growth, Employment, or Inflation?

The effect of QE2 on interest rates could be small and limited to an announcement effect.


2010, No. 28

Can the FOMC Increase the Funds Rate Without Reducing Reserves?

With the funds rate driven to levels far below its target, the FOMC had no recourse but to adjust the target accordingly.


2010, No. 27

Deflation and the Fisher Equation

So, according to Irving Fisher, one reason to worry about deflation is that the federal funds rate is expected to be held near zero as the economy grows out of this recession.


2010, No. 26

The Effects of Large-Scale Asset Purchases on TIPS Inflation Expectations

Large-scale asset purchases may have limited power to raise TIPS-implied inflation expectations—something that might appeal to policymakers fighting deflation.


2010, No. 25

Which Comes First: Inflation or the FOMC's Funds Rate Target?

Must the FOMC increase its target before inflation, or will inflation increase and cause the FOMC to increase its target?


2010, No. 24

The Monetary Base and Bank Lending: You Can Lead a Horse to Water…

Why was the increase in the money stock so small when the increase in the monetary base was so large?


2010, No. 23

The European Debt Crisis and U.S. Economic Growth

The recent strengthening of the correlations between U.S. GDP growth and that of Mexico, Canada, and Euro-19 validates further consideration of the performance of U.S. trade partners for growth.


2010, No. 22

Sovereign Debt Shadows

All five peripheral EU countries face burdensome public debt and budget deficits, but the causes for uncertainty in each country’s situation differ.


2010, No. 21

Business Cycle Measures

Business cycle measures can provide timely statistical evidence of turning points.


2010, No. 20

Using Stock Market Liquidity to Forecast Recessions

Market participants rebalance their portfolios in advance of a recession.


2010, No. 19

Why Aren’t the Chinese Buying More American Goods?

The important point is that both the Chinese trade surplus with the United States and the amassed foreign reserves result from the savings decisions of Chinese consumers.


2010, No. 18

A Jump in Consumer Loans?

The dramatic increases [in consumer loans] over the past few months have been caused by a new reporting requirement issued by the Financial Accounting Standards Board.


2010, No. 17

The First U.S. Quantitative Easing: The 1930s

During 1932, with congressional support, the Fed purchased approximately $1 billion in Treasury securities.


2010, No. 16

Recent Changes in Labor Force Participation: Trend or Cycle?

During a recession, the participation rate typically declines as discouraged workers exit the labor force.


2010, No. 15

Why Do People Dislike Inflation?

Inflation is seldom caused by lump-sum transfers but is often caused by higher government spending programs.


2010, No. 14

Monetizing the Debt

A more interesting and economically relevant definition of “monetizing the debt” is based on the Fed’s motivation rather than its actions.


2010, No. 13

City Growth and Industry Employment Reallocation

Cities initially more specialized in older technologies may have had more difficulty adapting to newer technologies because skills in initially dominant industries were not useful to new industries.


2010, No. 12

Economic Growth and the Global Savings Glut

Economic theory predicts that fast growth can lead to high saving rates if people lack financial institutions that allow them to borrow.


2010, No. 11

Monetary Policy and Asset Prices

The housing market crisis is the latest reminder that asset prices can and do run wild at rates capable of negative effects on real economic activity. Not surprisingly, this has reinvigorated debate over whether central banks should respond to asset price bubbles.


2010, No. 10

“How Central Should the Central Bank Be?” A Comment

The Reserve Bank presidents are fully accountable to our democratic institutions and the decentralized structure promotes healthy debate on monetary policy and regulatory issues.


2010, No. 9

Not Your Father’s Oil Shock

Factors other than changes in oil supply may cause changes in oil prices.


2010, No. 8

When Will Business Lending Pick Up?

The recent declines in tightening of lending standards suggest that business lending may be poised for a rebound.


2010, No. 7

Why Income Per Worker Differs Worldwide

A higher entry cost distorts the industry structure and the allocation of productive factors across firms, which results in lower total factor productivity and output per worker.


2010, No. 6

Money Supply, Credit Expansion, and Housing Price Inflation

Credit and M2 may be driven simultaneously as part of a broader financial intermediation process; a common underlying factor may be the interest rate.


2010, No. 5

Using FOMC Forecasts to Forecast the Economy

FOMC members have incentives to construct their forecasts strategically.


2010, No. 4

Okun’s Law: Output and Unemployment

U.S. output growth declined less than in most other industrialized countries while U.S. unemployment rose higher and faster than it did in most other major industrialized countries.


2010, No. 3

Are Low Interest Rates Good for Consumers?

Although banks’ cost of funds has dropped dramatically with the federal funds rate target, households’ cost of funds has remained high, especially if we look at their cost of borrowing relative to their rate of return on saving.


2010, No. 2

Measuring Financial Market Stress

Although the STLFSI suggests the level of financial stress in the markets has declined significantly since September 2008, the stress level remains modestly higher than average.


2010, No. 1

The Evolving Size Distribution of Banks

If limiting the size of large banks were considered appropriate to reduce systemic risk, it would be a clear change of direction relative to the long-term evolution of the industry.


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