Review

“Financial Stability” is a speech given by the author at the Council of State Governments, Southern Legislative Conference Annual Meeting, New Orleans, Louisiana, August 4, 2002.

Following the terrorist attacks on September 11, 2001, the passage of the Aviation and Transportation Act mandated a substantial increase in resources devoted to aviation security. This article summarizes the specific changes stemming from this legislation. In addition, the author examines the economic issues underlying the regulation and provision of aviation security. 

Despite the ongoing worldwide trend toward regional integration, Japan has remained outside of all regional trading agreements. Because more than 60 percent of Japan’s trade is with countries that are members of a major regional bloc, this reluctance may have had significant effects on its pattern and volume of trade. 

In January 2000, the Federal Open Market Committee (FOMC) instituted the practice of issuing a “balance of risks” statement along with their policy decision immediately following each FOMC meeting. Robert H. Rasche and Daniel L. Thornton evaluate the use of the balance-of-risks statement and the market’s interpretation of it. 

For many years after the seminal work of Meese and Rogoff (1983a), conventional wisdom held that exchange rates could not be forecast from monetary fundamentals. Monetary models of exchange rate determination were generally unable to beat even a naïve no-change model in out-of-sample forecasting. 

In this article, Hui Gho shows that, if stock volatility follows an AR(1) process, stock market returns relate positively to past volatility but relate negatively to contemporaneous volatility in Merton’s (1973) Intertemporal Capital Asset Pricing Model.