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The article presents a study which focuses on the Commercial Paper Funding Facility (CPFF) of the U.S. Federal Reserve System, as well as the economic role of the commercial paper market. It says that the commercial paper market is being used by commercial banks and financial institutions to acquire short-term external funding. It also mentions that the CPFF was designed to provide additional source of funding to institutions in order to minimize the reinvestment risk.

Since its inception in the early nineteenth century, the U.S. commercial paper market has grown to become a key source of short-term funding for major businesses, with issuance averaging over $100 billion per day. In the fall of 2008, the commercial paper market achieved national prominence when increasing market stress caused some to fear that, given its size and importance, the market's failure would sharply worsen the recession. The Department of the Treasury and Federal Reserve enacted programs targeted at providing credit and liquidity to restore investor confidence. The authors review the history of the commercial paper market, describe its structure and key relationships to money market mutual funds, and present a detailed discussion of the crisis in the market, including the resulting Federal Reserve programs. [ABSTRACT FROM AUTHOR]

Presents a list of working papers from the Federal Reserve Bank of Saint Louis, Missouri in 2003. "Asymmetric Common Trends: An Application of Monetary Policy in a Markov-Switching VECM," by Neville Francis and Michael T. Owyang; "FOMC Forecasts: Is All the Information in the Central Tendency?," by William T. Gavin; "Does Consumer Sentiment Predict Regional Consumption?," by Thomas A. Garrett.

Presents an overview and summary of papers presented at the conference held at the Federal Reserve Bank of New York which tackled issues regarding disclosure and market discipline in the banking industry. Interaction between supervisor examinations and market discipline; Relationship between bank disclosure and stock price volatility; Indicators for the determination of troubled banks.

Lists the working papers from the Federal Reserve Bank of Saint Louis, Missouri containing preliminary results of staff research from 1991 to 1996. Includes `Discount Rate Policies of Five Federal Reserve Chairman,' by Daniel L. Thornton; `Dependent Children and Aged Parents: Funding Education and Social Security in an Aging Economy,' by Patricia S. Pollard and Rowena A. Pecchenino.

The U.S. labor market contracted sharply during the Great Recession. The ensuing recovery has been sluggish and by some measures still incomplete. In this paper, we break down aggregate employment during the Recession and the recovery into changes across industries and occupations. There is a clear asymmetric pattern: The contraction is driven by sectors and the recovery by occupations. In particular, the contraction between 2008 and 2010 primarily reflects a steep decline in construction employment, partially mitigated by expansions in the food services, education, and health industries. The recovery first came from a gradual increase in low-skill occupation employment across all sectors but after 2012 from a pronounced increase in high-skill occupation employment across all sectors. This pattern of recovery is a continuation of the underlying trend of polarization across occupations, which commenced in the 1980s. [ABSTRACT FROM AUTHOR]

This paper studies how local policies-specifically, taxes on income with redistributive goals-affect the migration decisions of individuals and, in turn, how these migration decisions affect local and economy-wide tax and redistribution policies. The author develops a model of optimal taxation for a federal system of governments in the tradition of Mirrlees (1971), where taxes can be fully nonlinear but informational asymmetries prevent the equalization of well being across workers due to informational rents. This article extends the large literature on federalism and tax competition by obtaining optimal tax formulas for the federal and state governments. The literature has mainly focused on inefficiencies that arise due to fiscal externalities when governments have access to restricted instruments (for example, allowing only linear taxes). Contrary to previous results in that literature, the author shows here that state governments will provide redistribution through taxes and that, in a symmetric equilibrium, the overall tax schedule that combines the actions of both the federal and state governments is the same as that of a unitary government. This implies that, under the conditions analyzed in the model, there is no reason to restrict income redistribution objectives to the federal government only, as commonly prescribed in the literature. [ABSTRACT FROM AUTHOR]

In the mid-2000s, household private debt reached a new level 1.2 times larger than personal income- before collapsing during the Great Recession. This paper uses microeconomic data to document the main changes in personal debt and explore the behavior of debt across generations over two periods: before and after the Great Recession. Special emphasis is placed on participation rates by category of debt (the extensive margin), volume borrowed (the intensive margin), and default behavior. Key findings include that between 1999 and 2013 the fraction of individuals with only unsecured (e.g., credit card) debt decreased, as did their balances. In addition, most forms of private debt (mortgages, credit card debt, and auto loans) had significant boom-bust cycles, but the effects across generations have been very asymmetric. [ABSTRACT FROM AUTHOR]

This paper investigates the effectiveness of one of the Federal Reserve's unconventional monetary policy tools, the term auction facility (TAF). At issue is whether the TAF reduced the spread between the London interbank offered rate (LIBOR) rates and equivalent-term Treasury rates by reducing the liquidity premium embedded in LIBOR rates. This paper suggests that rather than reducing the liquidity premium in LIBOR rates, the announcement of the TAF increased the risk premium in financial and other bond rates because market participants interpreted the announcement by the Fed and other central banks as a sign that the financial crisis was worse than previously thought. Evidence is presented that supports this hypothesis. [ABSTRACT FROM AUTHOR]

This paper examines the role of community colleges in the U.S. higher education system and their advantages and shortcomings. In particular, it discusses the population of community college students and economic returns to community college education for various demographic groups. It offers new evidence on the returns to an associate's degree. Furthermore, the paper uses data from the National Survey of College Graduates to compare educational objectives, progress, and labor market outcomes of individuals who start their postsecondary education at community colleges with those who start at four-year colleges. Particular attention is paid to the Federal Reserve's Eighth District, the geographic area served by the Federal Reserve Bank of St. Louis. [ABSTRACT FROM AUTHOR]

Congestion at airports imposes large costs on airlines and their passengers. A key reason for congestion is that an airline schedules its flights without regard to the costs imposed on other airlines and their passengers. As a result, during some time intervals, airlines schedule more flights to and from an airport than that airport can accommodate and flights are delayed. This paper explores how a specific market-based proposal by the Federal Aviation Administration (FAA), which includes the use of auctions to determine the right to arrive or depart in a specific time interval at airports in the New York City area, might be used as part of a strategy to mitigate delays and congestion. By explaining the underlying economic theory and key arguments with minimal technical jargon, the paper allows those with little formal training in economics to understand the fundamental issues associated with the FAA's controversial proposal. Moreover, the basics of the proposed auction process, known as a combinatorial auction, and value capture are also explained. [ABSTRACT FROM AUTHOR]

The article discusses the 2008 Survey of Consumer Payment Choice (SCPC) program which examines the role of consumers during the transformation of payment's transaction from paper to electronic devices in the U.S. Findings of the survey reveal that their selection of payment instruments have increased from 4.2 to 5.1 in the year. It also indicates that 53% of them used electronic cards such as credit, debit and prepaid while 37% still utilized paper instruments.

This paper examines some of the more recent mortgage products now available to borrowers. The authors describe how these products differ across important characteristics, such as the down payment requirement, repayment structure, and amortization schedule. The paper also presents a model with the potential to analyze the implications for various mortgage contracts for individual households, as well as to address many current housing market issues. In this paper, the authors use the model to examine the implications of alternative mortgages for homeownership. The authors use the model to show that interest rate-adjustable mortgages and combo loans can help explain the rise-and fall-in homeownership since 1994. [ABSTRACT FROM AUTHOR]

This paper develops a generalization of the formulas proposed by Kuttner (2001) and others for purposes of measuring the effects of a change in the federal funds target on Treasury yields of different maturities. The generalization avoids the need to condition on the date of the target change and allows for deviations of the effective fed funds rate from the target as well as gradual learning by market participants about the target. The paper shows that parameters estimated solely on the basis of the behavior of the fed funds and fed funds futures can account for the broad calendar regularities in the relation between fed funds futures and Treasury yields of different maturities. Although the methods are new, the conclusion is quite similar to that reported by earlier researchers—changes in the fed funds target seem to be associated with quite large changes in Treasury yields, even for maturities of up to 10 years. [ABSTRACT FROM AUTHOR]

Monetary policy analysts often rely on rules of thumb, such as the Taylor rule, to describe historical monetary policy decisions and to compare current policy with historical norms. Analysis along these lines also permits evaluation of episodes where policy may have deviated from a simple rule and examination of the reasons behind such deviations. One interesting question is whether such rules of thumb should draw on policymakers' forecasts of key variables, such as inflation and unemployment, or on observed outcomes. Importantly, deviations of the policy from the prescriptions of a Taylor rule that relies on outcomes may be the result of systematic responses to information captured in policymakers' own projections. This paper investigates this proposition in the context of Federal Open Market Committee (FOMC) policy decisions over the past 20 years, using publicly available FOMC projections from the semiannual monetary policy reports to Congress (Humphrey-Hawkins reports). The results indicate that FOMC decisions can indeed be predominantly explained in terms of the FOMC's own projections rather than observed outcomes. Thus, a forecast-based rule of thumb better characterizes FOMC decisionmaking. This paper also confirms that many of the apparent deviations of the federal funds rate from an outcome-based Taylor-style rule may be considered systematic responses to information contained in FOMC projections. [ABSTRACT FROM AUTHOR]

Many predictions of the economic and social costs of a modern-day pandemic are based on the effects of the influenza pandemic of 1918. Despite killing 675,000 people in the United States and 40 million worldwide, the influenza of 1918 has been nearly forgotten. The purpose of this paper is to provide an overview of the influenza pandemic of 1918 in the United States, its economic effects, and its implications for a modern-day pandemic. The paper provides a brief historical background as well as detailed influenza mortality statistics for cities and states, including those in the Eighth Federal Reserve District, that account for differences in race, income, and place of residence. Information is obtained from two sources: (i) newspaper articles published during the pandemic and (ii) a survey of economic research on the subject. (JEL I1, N0, R0) [ABSTRACT FROM AUTHOR]

Personal bankruptcy filings in the United States increased, per capita, nearly 350 percent between 1980 and 2005. This paper first addresses the changes in economic and institutional factors that have occurred over the past 100 years, many of which have occurred in the past 30 years, which are likely contributors to the dramatic rise in personal bankruptcy filings seen across the country. These factors include a reduction in personal savings, an increase in consumer debt, the proliferation of revolving credit, changes to bankruptcy law, and a reduced social stigma associated with filing for bankruptcy. Given the availability of bankruptcy data at various levels of aggregation, the remaining sections of the paper contain results from several different empirical analyses of bankruptcy filings using various data sets. Careful attention is paid to personal bankruptcy filings in counties located in Eighth Federal Reserve District states. [ABSTRACT FROM AUTHOR]

Is the United States bankrupt? Many would scoff at this notion. Others would argue that financial implosion is just around the corner. This paper explores these views from both partial and general equilibrium perspectives. It concludes that countries can go broke, that the United States is going broke, that remaining open to foreign investment can help stave off bankruptcy, but that radical reform of U.S. fiscal institutions is essential to secure the nation's economic future. The paper offers three policies to eliminate the nation's enormous fiscal gap and avert bankruptcy: a retail sales tax, personalized Social Security, and a globally budgeted universal healthcare system. [ABSTRACT FROM AUTHOR]

When taxing real property at the local level in the United States, land and improvements to the land, such as buildings, are generally taxed at the same rate. Two-rate (or split-rate) taxation departs from this practice by taxing land at a higher rate than structures. This paper begins with an elementary discussion of taxation and the economic rationale for two-rate taxation. In theory, moving to a two-rate tax reduces the deadweight losses associated with distortionary taxation and generates additional economic activity. The paper also provides a history of two-rate taxation in the United States and a summary of studies attempting to quantify its economic effects. Discussions of the practical and political challenges of implementing two-rate taxation complete the paper. [ABSTRACT FROM AUTHOR]

In this paper, the author develops and uses an original dataset collected from the internal discussion of the Federal Reserve's monetary policy committee (the Federal Open Market Committee [FOMC] transcripts) to examine questions about the Committee's behavior. The data show that Chairman Alan Greenspan's proposals, after Committee discussion, were nearly always adopted unmodified in the formal vote. Despite the external appearance of consensus with little disagreement over decisions and an official dissent rate of 7.5 percent, the data reveal that the rate of disagreement in internal Committee discussions was quite high-on the order of 30 percent for discussions of the short-term interest rate. And, under the assumption that FOMC voters assigned a higher priority to their preferences for the short-term interest rate than for the bias in the policy directive, it can be shown that this bias was important for achieving consensus, which supports and extends the results of Thornton and Wheelock (2000). Thus, the novel dataset described in this paper helps to shed some light on the internal workings of the FOMC in the Greenspan years. [ABSTRACT FROM AUTHOR]

In this paper the author discusses the possibility that the U.S. economy may become enmeshed in a Japanese-style deflationary outcome within the next several years. To frame the discussion, the author relies on an analysis that emphasizes two possible long-run steady states for the economy: one that is consistent with monetary policy as it has typically been implemented in the United States in recent years and one that is consistent with the low nominal interest rate, deflationary regime observed in Japan during the same period. The data considered seem to be quite consistent with the two steady-state possibilities. The author describes and critiques seven stories that are told in monetary policy circles regarding this analysis and emphasizes two main conclusions: (i) The Federal Open Market Committee's "extended period" language may be increasing the probability of a Japanese-style outcome for the United States and (ii), on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome. [ABSTRACT FROM AUTHOR]

The article presents research paper about the methodological inquiry of how to measure the real value of the real output of bank services. It states that the paper shows that the bias of the deflated-balance series differs across types of bank services, countries and over time. Moreover, it notes that the official estimate of European bank output growth is most probably biased relative to that of the U.S.

The article presents a reprint of the article "Financial Innovations and the Real Economy: Conference Summary," by Mark Doms, John Fernald and Jose A. Lopez, which appeared in the March 2, 2007 issue of "FRBSF Economic Letter." It states that seven papers were featured in this conference that address the impact of innovations in the financial sector on the real economy. It mentions one paper which focuses on the changes in U.S. household debt.

Presents the synopsis of the research paper 'Do State Governments Matter? A Review of the Evidence on the Impact on Educational Outcomes of the Changing Role of the States in the Financing of Public Education,' by Thomas A. Downes of Tufts University. Review of evidence on how state and local financing reforms have affected educational quality; Effect of charter schools to the performance of students in traditional schools; Discussions of the research paper.

The article focuses on theoretical considerations regarding net asset values (NAV) for money market funds in the U.S. It states that money market funds are open-end mutual funds invest in short-term high-credit-quality debt tools as commercial paper and deposit. It presents two models or two alternative interpretation of the economic function by money funds.

This paper summarizes changes in housing prices during the recent U.S. boom and bust from various geographic perspectives. Nationally, the Standard & Poor's/Case-Shiller house price index more than doubled in nominal terms during the boom and has fallen by roughly a third subsequently. During the boom, housing prices tended to rise much faster in metropolitan areas in the East and West Coast regions than in the country's interior. After adjusting for inflation, 7 of 19 metropolitan areas have experienced real declines in housing prices from the start of the boom to the present. Although lower-priced houses showed a larger percentage increase during the boom, higher-priced houses fared relatively better over the boom and bust. Changes in land prices, which are not easily measured, appear to have driven housing prices to a greater extent than changes in the prices of housing structures. Internationally, seven countries experienced housing booms and busts; however, these countries tended to have larger booms and smaller absolute busts than the United States. [ABSTRACT FROM AUTHOR]

First-order approximation methods are a standard technique for analyzing the local dynamics of dynamic stochastic general equilibrium (DSGE) models. Although linear methods yield quite accurate solutions for a broad class of DSGE models, some important economic issues (e.g., portfolio choice and welfare) cannot be adequately addressed by first-order methods. This paper provides yet another case when first-order methods may be inadequate for capturing the business cycle properties of a DSGE model. In particular, the authors show that increasing returns to scale (due to production externalities) may induce asymmetric business cycles and nonlinear income effects that are not fully captured by linear approximation methods. For example, hump-shaped output dynamics can emerge even when externalities are below the threshold level required for indeterminacy, and output expansion tends to be smoother and longer, whereas contraction tends to be deeper but shorter-lived, as observed in the U.S. economy. [ABSTRACT FROM AUTHOR]

Hernández-Murillo and Owyang (2006) showed that accounting for spatial correlations in regional data can improve forecasts of national employment. This paper considers whether the predictive advantage of disaggregate models remains when forecasting subnational data. The authors conduct horse races among several forecasting models in which the objective is to forecast regional- or state-level employment. For some models, the objective is to forecast using the sum of further disaggregated employment (i.e., forecasts of metropolitan statistical area [MSA]-level data are summed to yield state-level forecasts). The authors find that the spatial relationships between states have sufficient predictive content to overcome small increases in the number of estimated parameters when forecasting regional-level data; this is not always true when forecasting state- and regional-level data using the sum of MSA-level forecasts. [ABSTRACT FROM AUTHOR]

This paper provides a systematic analysis of the lending performance of U.S. commercial banks and savings institutions that received financial support through the Capital Purchase Program (CPP) established in October 2008. The authors combine U.S. Treasury data on recipients of the CPP with quarterly financial data for the entire population of depository institutions to reconstruct aggregate lending and gross credit flows (expansion and contraction). CPP institutions experienced a less severe lending contraction than non-CPP institutions for all types of loans and bank asset levels. The authors find no evidence of unusual reallocation of lending across depository institutions. [ABSTRACT FROM AUTHOR]

The article presents research paper on gender-specific racial differences in obesity through self-reports of physical activity and food intake. It states that the authors use data from the National Health and Nutrition Examination Surveys (NHANES) 1999-2006 surveys to conduct a gender-specific multivariate analysis of obesity and body mass index (BMI). Moreover, it notes that the higher caloric intake among African American women contributed to their higher mean BMI and higher obesity rate.

This paper presents empirical evidence on the efficacy of forecast averaging using the ALFRED (ArchivaL Federal Reserve Economic Data) real-time database. The authors consider averages over a variety of bivariate vector autoregressive models. These models are distinguished from one another based on at least one of the following factors: (i) the choice of variables used as predictors, (ii) the number of lags, (iii) use of all available data or only data after the Great Moderation, (iv) the observation window used to estimate the model parameters and construct averaging weights, and (v) the use of either iterated multistep or direct multistep methods for forecast horizons greater than one. A variety of averaging methods are considered. The results indicate that the benefits of model averaging relative to Bayesian information criterion-based model selection are highly dependent on the class of models averaged The authors provide a novel decomposition of the forecast improvements that allows determination of the most (and least) helpful types of averaging methods and models averaged across. [ABSTRACT FROM AUTHOR]

In this paper the author discusses the possibility that the U.S. economy may become enmeshed in a Japanese-style deflationary outcome within the next several years. To frame the discussion, the author relies on an analysis that emphasizes two possible long-run steady states for the economy: one that is consistent with monetary policy as it has typically been implemented in the United States in recent years and one that is consistent with the low nominal interest rate, deflationary regime observed in Japan during the same period. The data considered seem to be quite consistent with the two steady-state possibilities. The author describes and critiques seven stories that are told in monetary policy circles regarding this analysis and emphasizes two main conclusions: (i) The Federal Open Market Committee's "extended period" language may be increasing the probability of a Japanese-style outcome for the United States and (ii), on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome. [ABSTRACT FROM AUTHOR]

How significant was the economic progress of African Americans in the United States between 1970 and 2000? In this paper the authors examine this issue for black men 25 to 55 years of age who live in 14 large U.S. metropolitan areas. They present evidence that significant racial disparities remain in education and labor market outcomes of black and white men, and they discuss changes in industrial composition, migration, and demography that might have contributed to the stagnation of economic progress of black men between 1970 and 2000. In addition, the authors show that there was no progress in the financial well-being of black children, relative to white children, between 1970 and 2000. [ABSTRACT FROM AUTHOR]

In this paper the authors report the results of the estimation of a rich dynamic stochastic general equilibrium (DSGE) model of the U.S. economy with both stochastic volatility and parameter drifting in the Taylor rule. They use the results of this estimation to examine the recent monetary history of the United States and to interpret, through this lens, the sources of the rise and fall of the Great Inflation from the late 1960s to the early 1980s and of the Great Moderation of business cycle fluctuations between 1984 and 2007. Their main findings are that, while there is strong evidence of changes in monetary policy during Chairman Paul Volcker's tenure at the Federal Reserve, those changes contributed little to the Great Moderation. Instead, changes in the volatility of structural shocks account for most of it. Also, although the authors find that monetary policy was different under Volcker, they do not find much evidence of a big difference in monetary policy among the tenures of Chairmen Arthur Burns, G. William Miller, and Alan Greenspan. The difference in aggregate outcomes across these periods is attributed to the time-varying volatility of shocks. The history for inflation is more nuanced, as a more vigorous stand against it would have reduced inflation in the 1970s, but not completely eliminated it. In addition, they find that volatile shocks (especially those related to aggregate demand) were important contributors to the Great Inflation. [ABSTRACT FROM AUTHOR]

The literature on investment analysts' forecasts of firms' earnings and their forecast errors is enormous. This paper summarizes the evidence on the distribution of analysts' forecasts and forecast errors using data for all U.S. firms from 1990 to 2004. The evidence indicates substantial asymmetry of earnings, earning forecasts, and forecast errors. There is strong support for average and median earning forecasts being higher than actual earnings a year before the earnings announcement. Such differences between earnings and forecasts also exist across time periods and industries. A month before the earnings announcement, the mean and median differences are small. [ABSTRACT FROM AUTHOR]

After being emblematic of the U.S. economic surge in the late 1990s, urban areas that specialize in information technology (IT) products struggled in the aftermath of the IT spending bust, with most experiencing deeper and longer periods of economic decline than the nation as a whole. Seven years later, most have recovered, but only a few have regained the prominence of earlier years. In this paper, we consider the rise, the fall, and the recovery of urban IT centers and distinguish between the factors leading to temporary gains and those contributing to a more lasting growth path. Specifically, we examine the initial characteristics of the most prominent IT centers, linking these characteristics to a discussion of economic research concerning the sources of growth in urban industrial centers. We then follow these centers through the IT bust and subsequent economic recovery. The results indicate that, although each of our IT centers was hit hard by the IT bust beginning in 2000, the full impact of the decline and the subsequent pace of recovery varied considerably with the size, density, and composition of the local IT sector. The overall experience of the IT sector and the factors that ultimately seemed to separate those urban areas that succeeded from those that struggled suggest that inputs to the process such as education, research networks, and flexibility matter more than picking the right industry. [ABSTRACT FROM AUTHOR]

Some analysts and economists recently warned that the U.S. economy faces a much higher risk of recession should the price of oil rise to $100 per barrel or more. In February 2008, spot crude oil prices closed above $100 per barrel for the first time ever, and since then they have climbed even higher. Meanwhile, according to some surveys of economists, it is highly probable that a recession began in the United States in late 2007 or early 2008. Although the findings in this paper are consistent with the view that the U.S. economy has become much less sensitive to large changes in oil prices, a simple forecasting exercise using Hamilton's model augmented with the first principal component of 85 macroeconomic variables reveals that a permanent increase in the price of crude oil to $150 per barrel by the end of 2008 could have a significant negative effect on the growth rate of real gross domestic product in the short run. Moreover, the model also predicts that such an increase in oil prices would produce much higher overall and core inflation rates in 2009 than most policymakers expect. [ABSTRACT FROM AUTHOR]

This paper estimates a Bayesian vector autoregression for the U.S. economy that includes a housing sector and addresses the following questions: Can developments in the housing sector be explained on the basis of developments in real and nominal gross domestic product and interest rates? What are the effects of housing demand shocks on the economy? How does monetary policy affect the housing market? What are the implications of house price developments for the stance of monetary policy? Regarding the latter question, we implement a Céspedes et al. (2006) version of a monetary conditions index. [ABSTRACT FROM AUTHOR]

In November 2007, the Federal Open Market Committee (FOMC) announced a change in the way it communicates its view of the economic outlook: It increased the frequency of its forecasts from two to four times per year, and it increased the length of the forecasting horizon from two to three years. The FOMC does not release the individual members' forecasts or standard measures of consensus such as the mean or median. Rather, it continues to release the forecast information as a range of forecasts, both the full range between the high and the low and a central tendency that omits the extreme values. This paper uses individual forecaster data from the Survey of Professional Forecasters (SPF) to mimic the FOMC's method for creating their central tendency. The authors show that the midpoint of the central tendency of the SPF is a reliable measure of the consensus, suggesting that the FOMC reporting method is also a reliable measure of consensus. For the dates when both are available, the authors also compare the relative forecast accuracy of the FOMC and SPF consensus forecasts for output growth and inflation. Overall, the differences in forecast accuracy are too small to be statistically significant. [ABSTRACT FROM AUTHOR]

This paper studies a banking industry subject to common and idiosyncratic shocks. We compare two types of regulatory closure rules: (1) an "absolute closure rule," which closes banks when their asset-liability ratios fall below a given threshold, and (2) a "relative closure rule," which closes banks when their asset-liability ratios fall sufficiently below the industry average. There are two main results: First, relative closure rules imply forbearance during "bad times," defined as adverse realizations of the common shock. This forbearance occurs for incentive reasons, not because of irreversibilities or political economy considerations. Second, relative closure rules are less costly to taxpayers, and these savings increase with the relative variance of the common shock. To evaluate the model, we estimate a panel-logit regression using a sample of U.S. commercial banks. We find strong evidence that U.S. bank closures are based on relative performance. Individual and average asset—liability ratios are both significant predictors of bank closure. [ABSTRACT FROM AUTHOR]

The composition of the American workforce has changed dramatically over the past half century as a result of both the emergence of married women as a substantial component of the labor force and an increase in the number of minority workers. The aging of the population has contributed to this change as well. In this paper, the authors review the evidence of changing labor force participation rates, estimate the trends in labor force participation over the past 50 years, and find that aggregate participation has stabilized after a period of persistent increases. Moreover, they examine the disparate labor force participation experiences of different demographic groups. Finally, they survey some of the studies that have provided explanations for these differences. [ABSTRACT FROM AUTHOR]

It is commonly believed that the Fed's ability to control the federal funds rate stems from its ability to alter the supply of liquidity in the overnight market through open market operations. This paper uses daily data compiled by the author from the records of the Trading Desk of the Federal Reserve Bank of New York over the period March 1, 1984, through December 31, 1996: He analyzes the Desk's use of its operating procedure in implementing monetary policy and the extent to which open market operations affect the federal funds rate--the liquidity effect. The author finds that the operating procedure was used to guide daily open market operations; however, there is little evidence of a liquidity effect at the daily frequency and even less evidence at lower frequencies. Consistent with the absence of a liquidity effect, open market operations appear to be a relatively unimportant source of liquidity to the federal funds market. [ABSTRACT FROM AUTHOR]

Since the mid-1990s, the national income and product accounts personal saving rate for the United States has been trending down, dropping into negative territory for three months during the past two years. This paper examines measurement problems surrounding two of the standard definitions of the personal saving rate. The authors conclude that, despite these measurement problems, the recent decline of the U.S. personal saving rate to low levels seems to be a real economic phenomenon and may be a cause for concern for several reasons. After examining several possible explanations for the trend advanced in the recent literature, the authors conclude that none of them provides a compelling explanation for the steep decline and negative levels of the U.S. personal saving rate. [ABSTRACT FROM AUTHOR]

The article discusses some of the issues covered at the May 2006 conference of the Federal Reserve Bank of New York about the market for interbank funds and the payments system. A paper, by Adam Ashcraft of the Federal Reserve explored whether trading frictions in the fed funds market affect the reallocation of excess reserves to banks requiring funds to complete their payments. Another presentation describes two approaches for characterizing the nonlocal, systemwide interconnections that may lead to systemic risk.

The author comments on the paper by Glenn Rudebusch et al which surveys literatures on monetary economics and interest rates. He expresses his view on the patterns in Figure 1 which presents the federal funds rate and 1- to 15-year forward rates through the past two recessions. He notes the error in the measurement of expected interest rates. He asserts that slope movements in the yield curve do not indicate risk premia nor does covariance with monetary policy shocks generate real risk premia.

This paper, using extensive archival material from several countries, brings together scattered information about Milton Friedman's views and predictions regarding U.S. monetary policy developments after 1960 (i.e., the period beyond that covered by his and Anna Schwartz's Monetary History of the United States). The author evaluates these interpretations and predictions in light of subsequent events. [ABSTRACT FROM AUTHOR]

Although the average rate of unemployment across U.S. metropolitan areas declined between 1980 and 2000, the geographic concentration of the unemployed rose sharply over this period. That is, residential neighborhoods throughout the nation's metropolitan areas became increasingly divided into high- and low-unemployment areas. This paper documents this trend using data on more than 165,000 U.S. Census block groups (neighborhoods) in 361 metropolitan areas over the years 1980, 1990, and 2000; it also examines three potential explanations: (i) urban decentralization, (ii) industrial shifts and declining unionization, and (iii) increasing segregation by income and education. The results offer little support for either of the first two explanations. Rising residential concentration of the unemployed shows little association with changes in population density, industrial composition, or union activity. It does, however, show a significant association with both the degree of segregation according to income as well as education, suggesting that decreases in the extent to which individuals with different levels of income and education live in the same neighborhood may help account for this trend. [ABSTRACT FROM AUTHOR]

A central tenet of inflation targeting is that establishing and maintaining well-anchored inflation expectations are essential. In this paper, we reexamine the role of key elements of the inflation targeting framework towards this end, in the context of an economy where economic agents have an imperfect understanding of the macroeconomic landscape within which the public forms expectations and policymakers must formulate and implement monetary policy. Using an estimated model of the U.S. economy, we show that monetary policy rules that would perform well under the assumption of rational expectations can perform very poorly when we introduce imperfect knowledge. We then examine the performance of an easily implemented policy rule that incorporates three key characteristics of inflation targeting: transparency, commitment to maintaining price stability, and close monitoring of inflation expectations, and find that all three play an important role in assuring its success. Our analysis suggests that simple difference rules in the spirit of Knut Wicksell excel at tethering inflation expectations to the central bank's goal and in so doing achieve superior stabilization of inflation and economic activity in an environment of imperfect knowledge. [ABSTRACT FROM AUTHOR]

The article discusses a working paper which uses state and metropolitan area house price indexes from the Office of Federal Housing Enterprise Oversight (OFHEO) to interpret the housing market in the U.S. It analyzes the timing and apparent causes of state-wide house price decreases. Based on the results, the authors predict that the OFHEO measures of home prices may continue to increase until the end of 2006. It implies that average prices will remain flat for 2006 and 2007.

This paper evaluates the need for a government role in insuring natural and man-made catastrophes in the United States. Although insurance markets have been stressed by major natural catastrophes, such as Hurricane Katrina, government involvement in the market for natural catastrophe insurance should be minimized to avoid crowding-out more efficient private market solutions, such as catastrophe bonds. Instead, government should facilitate the development of the private market by reducing regulatory barriers. The National Flood Insurance Program has failed to cover most property owners exposed to floods and is facing severe financial difficulties. The program needs to be drastically revised or replaced by private market alternatives, such as federal "make available" requirements with a federal reinsurance backstop. A federal role may be appropriate to insure against mega-terrorist events. However, any program should be minimally intrusive and carry a positive premium to avoid crowding-out private market alternatives. [ABSTRACT FROM AUTHOR]