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A feature of U.S. postwar business cycle experience that is by now widely documented is the tendency of the spread between the respective interest rates on commercial paper and Treasury bills to widen shortly before the onset of recessions. By contrast, the paper-bill spread did not anticipate the 1990-1991 recession. Empirical work presented in this paper supports two (not mutually exclusive) explanations for this departure from past experience. First, at least part of the paper-bill spread's predictive content with respect to business cycle fluctuations stems from its role as an indicator of monetary policy, but the 1990-1991 recession was unusual in postwar U.S. experience in not being immediately precipitated by tight monetary policy. Second, movements of the spread during the few years just prior to the 1990-1991 recession were strongly influenced by changes in the relative quantities of commercial paper, bank CDs, and Treasury bills that occurred for reasons unrelated to the business cycle. This latter finding in particular sheds light on the important role of imperfect substitutability of different short-term debt instruments in investors' portfolios, and highlights the burdens associated with using relative interest rate relationships as business cycle indicators. [ABSTRACT FROM AUTHOR]

This paper considers the macroeconomics of the oil price for the United States. It investigates the impact of large oil price hikes in a standard VAR framework by introducing a new Markov switching based oil price specification. The explanatory power of this new specification is compared to that of a number of prominent non-linear specifications. The key findings are: (1) the new oil price specification is appropriate in both empirical and theoretical terms and allows for a well-founded distinction between "large" and "normal" oil price increases. (2) The observed impact of oil price shocks on real GDP growth is largely attributable to no fewer than three large oil price increases, namely those of 1973-74, 1979 and 1991, while variables such as consumer and import prices are also affected by normal oil price increases. [ABSTRACT FROM AUTHOR]

This article examines the performance of a price-wage model in tracking the inflation in the U.S. in the 1970s. Most econometric models base their inflation forecasts on structural price and wage equations, either a single pair for the aggregate economy, or a larger set of disaggregated equations. The paper is divided into three sections, one on the price equation, one on the wage equation and one on dynamic simulations in which the two equations interact. Considerable experimentation with lag structures suggests that the effect of the commodity market on wages can be represented by a pair of proxies for excess demand: (1) the gap between actual and potential output and (2) the first difference in the gap. A dynamic simulation of the wage and price equations, which allows for the effects of wages on prices and prices on wages, provides an assessment of the inflationary implications of alternative paths of economic recovery and of the required duration of a stable prices at any cost policy that prevents recovery and maintains the output gap. Policy simulations with a two-equation wage-price model have both disadvantages and advantages as compared to simulations using the large-scale forecasting models.

This article presents a comment on the article "Three Lessons for Monetary Policy in a Low-Inflation Era." The author notes that the paper does an effective job highlighting the economic instability that the lower bound of zero on the nominal interest rate could cause. The author's comments address the policy suggestions that are offered in the paper and the stability analysis that is presented. The author presents his own model to examine policy rules and uses this model as a basis for his comments about the policy suggestions offer in the paper.

This paper offers three results. First, in line with the previous literature, we confirm that fiscal adjustments based mostly on the spending side are less likely to be reversed. Second, spending-based fiscal adjustments have caused smaller recessions than tax-based fiscal adjustments. Finally, certain combinations of policies have made it possible for spending-based fiscal adjustments to be associated with growth in the economy even on impact rather than with a recession. Thus, expansionary fiscal adjustments are possible. [ABSTRACT FROM AUTHOR]

Curiously and in spite of its name, very few business cycle theories actually treat it as a cycle. Mainstream economists, for example, model all macroeconomic fluctuations as a function of exogenous forces. In their view, the economy remains at full employment indefinitely unless impacted by some external event. Post Keynesian economists disagree strongly with this characterization, arguing instead that business-cycle fluctuations are endogenously generated. The goal of this paper is to compare the explanatory power of four business cycle models - three mainstream and one Post Keynesian - for the U.S. economy since 1971. While the test employed is a simple one, the results are very clear: no model's performance comes even close to that of the one based on Keynes's seventy-year old analysis. [ABSTRACT FROM AUTHOR]

The article provides information about the book "Asia After the 'Miracle': Redefining U.S. economic and security priorities," by Selig S. Harrison and Clyde V. Prestowitz. Sixteen papers, prepared for a study group that was established by the Economic Strategy Institute and met nine times during 1996 and 1997, discuss American economic and security interests and priorities in Asia. Papers examine the impact of U.S-Asian relations on the U.S. economy: U.S. economic and security interests in Japan, Korea, China. Taiwan, Southeast Asia, and South Asia; U.S. economic and security interests in Asia in the next decade; and the military environment in Asia. Includes an editors' assessment of the factors that should govern U.S. choices in Asia as well as the specific recommendations of the study group in ten key areas of the Asia policy debate. Harrison is at the Woodrow Wilson International Center for Scholars and with the Century Foundation. Prestowitz is with the Economic Strategy Institute.

During and after the 'Great Recession' that began in December 2007 the U.S. federal government enacted several rounds of activist fiscal policy. In this paper, we review the recent evolution of thinking and evidence regarding the effectiveness of activist fiscal policy. Although fiscal interventions aimed at stimulating and stabilizing the economy have returned to common use, their efficacy remains controversial. We review the debate about the traditional types of fiscal policy interventions, such as broad-based tax cuts and spending increases, as well as more targeted policies. While there have been improvements in estimates of the effects of broad-based policies, much of what has been learned recently concerns how such multipliers might vary with respect to economic conditions, such as the credit market disruptions and very low interest rates that were central features of the Great Recession. The eclectic and innovative interventions by the Federal Reserve and other central banks during this period highlight the imprecise divisions between monetary and fiscal policy and the many channels through which fiscal policies can be implemented. [ABSTRACT FROM AUTHOR]

When significant government action is needed and sought, as in the current financial crisis and weak economy, it is easy to forget the underlying market principles that have made the U.S. economy the strongest in the world. Adherence to these principles is the surest path to continued economic growth and stability over the long run. Of particular importance are policies that allow flexibility in labor markets; free movement of capital, unimpeded by excessive regulation; tax rates that minimize disincentives for the development of human and physical capital; and liberalization of international flows of goods, services, and capital. Regarding the current credit crisis, its effect on the real economy has been amplified by falling asset prices and high oil prices. Policy will be continuously evolving, but the $700 billion stabilization package is an important step. [ABSTRACT FROM AUTHOR]

A model of aggregate wage and price setting is developed that nests competing hypotheses concerning the role of worker' aspirations and bargaining power in the wage bargain. It is shown that although aspirations and bargaining power always affect inflation in the short run, there is disagreement as to whether or not they influence macroeconomic performance in the long run. Empirical results suggest that a model in which aspirations and bargaining power affect the long-run rate of unemployment best fits the data and most accurately forecasts the rate of inflation. The implications of this result for the potential future performance of the U.S. economy and for macroeconomic policy are explored. [ABSTRACT FROM AUTHOR]

Highlights the increased stability of the U.S. economy and assesses the contribution of policy to the decline in volatility. Factors contributing to the stability of the U.S. economy; Contribution of monetary policy to the stability of the economy; Discussion of monetary policy in relation to the inflation rate in the 1970s, 1980s and 1990s; Significance of the change in monetary policy to the drop in economic volatility in the 1980s.

This paper revisits the authors' earlier analysis of the fiscal impact of immigration (Lee and Miller, 1997), henceforth LM97, in light of higher projected rates of productivity growth, an unexpected increase in the effective federal income tax rate in recent years, and some revisions of the demographic projections. The authors emphasize implications for Social Security, and address points raised by the recent literature (Holger Bonin et al., 1998; George Borjas, 1999; Alan Auerbach and Philip Oreopolis, 2000; Kjetil Storesletten, 2000). They state the most important conclusion is that the overall fiscal consequences of altering the volume of immigration would be quite small and should not be a major consideration for policy. Their results also suggest that a policy of admitting only high-education immigrants of young working ages could be highly fiscally beneficial, consistent with the findings of Bonin et al. (1998), Auerbach and Oreopolis (2000), and Storesletten (2000). However, such a policy would most likely conflict with other goals of immigration policy.

This article analyzes the economic policies of U.S. President Ronald Reagan. Despite a budget and trade deficit which provided the opportunities to invest for a more productive future the total social investments have fallen. The author of this article suggests that while the new economic orthodoxy had promised a miracle, it delivered a debacle. The supply-siders were promised lower taxes without government deficits and without cuts in needed government services. They delivered tax cuts and wound up with government deficits despite taking to the domestic social programs. The monetarist ended up presiding over the recession they had created-the most severe in the postwar era. The new orthodoxy succeeded in strengthening the hand of business on all fronts of labor, consumers, government, but it failed to induce business to invest. The financial speculation spree of wild proportions was present instead of an economic boom. With lower taxes leaving corporations with much needed liquid cash investments were made only in paper bonds with lower interest rates.

This article focuses on the role of postsecondary education in state economic development strategies in the U.S. The renewed recognition that the U.S. society rests on a strong economy has stimulated strong interest among state policy-makers in possible strategies for economic development. Among these strategies, increased attention has been focused upon the potential role of education. While many policy-makers at the state level seem to be turning their attention to the role of postsecondary education in economic development, a review of the relevant literature reveals very little in the way of policy recommendations or evaluation of the efficacy of this approach to economic development. Published material on the relationship of vocational-technical education to economic development is more widely available. While this is undoubtedly due in part to this sector's long-standing interest in economic development, it is also due to the efforts of the National Center for Research in Vocational Education. Given the substantial interest that exists in the possible role of postsecondary education in economic development, a descriptive study of the organizational and working relationships between the postsecondary education community and economic development was undertaken and a limited number of states were selected for study.

In a recent research paper by Bruno Frey and Friedrich Schneider (to be called FS for later reference) presented some interesting results on the political-economic interactions in the U.S. for the period 1953-1975. According to these results, the state of the economy (represented by unemployment, inflation and the growth of private consumption) exercises a significant influence on presidential popularity on the one hand and, on the other, there is substantial evidence that the president manipulates economic policies (government nondefense expenditures, transfer payments, and civilian jobs created in the public sector) to get himself reelected. However, the purpose of this article is first to point out some shortcomings of their model, and then to test their model against our own with the same set of data. The model of the reaction function, as formulated by FS, has some shortcomings, it was made largely a function of political variables and it was developed in terms of individual instruments of fiscal policy only.

The article provides an analysis and debate of a letter written by Catholic Bishops of the United States addressing moral issues posed by the United States economy. The letter is entitled "Justice for All: Catholic Social Teaching and the U.S. Economy," and may have a significant effect on United States economic priorities. The objective of the discussion presented in the article is to provide a greater understanding of the letter and how it will affect the atmosphere in which businesses operate.

The article considers the reasons for the poor economic performance of the United States since the 1960s. The author claims that inflation and its effect on economic growth, per capita wage levels, and business investments caused corporations to become less competitive and lose technological superiority. Ford Motor Co. is considered as an example of the blindly selfish actions of a corporation and the self-destructive effects that an organizational ideology can have on both the organization itself and society at large.

Since the 1970s, corporate governance in the United States has become increasingly beholden to Wall Street. This trend is so prominent that the resulting formation is increasingly known as money manager capitalism. This article explores some of the reasons behind this change, and its implications for the American economy. [ABSTRACT FROM AUTHOR]

This study investigates if the changes of economic policy uncertainty in the U.S. can explain the returns on stock markets of Indonesia, Malaysia, Philippines, Singapore and Thailand. This study also examines how the stock market returns in the five countries respond to the changes in economic policy uncertainty in the U.S. The Granger causality tests are also performed to determine if the changes in economic policy uncertainty cause the returns on the five stock markets. The results, from analysing monthly date from 1985:2 to 2012:2, show that the changes in economic policy uncertainty in the U.S. are negatively linked to the returns on the five ASEAN stock markets. Controlling for the effect of the U.S stock market, only Philippines coefficient becomes insignificant. The vector autoregressive analyses show that returns on the five ASEAN stock markets negatively respond to the changes in economic policy uncertainty immediately. The Granger causality tests reveal that the changes in economic policy uncertainty in the U.S. cause the returns on the Singapore and Malaysia stock markets; the same cannot said for the case of Indonesia, Philippines and Thailand. [ABSTRACT FROM AUTHOR]

The Social Security Act of 1935 excluded from coverage about half the workers in the American economy. Among the excluded groups were agricultural and domestic workers--a large percentage of whom were African Americans. This has led some scholars to conclude that policymakers in 1935 deliberately excluded African Americans from the Social Security system because of prevailing racial biases during that period. This article examines both the logic of this thesis and the available empirical evidence on the origins of the coverage exclusions. The author concludes that the racial-bias thesis is both conceptually flawed and unsupported by the existing empirical evidence. The exclusion of agricultural and domestic workers from the early program was due to considerations of administrative feasibility involving tax-collection procedures. The author finds no evidence of any other policy motive involving racial bias. [ABSTRACT FROM AUTHOR]

Understanding phenomena such as the recent financial crisis, and possible policy responses, requires the use of a macroeconomic framework in which financial intermediation matters for the allocation of resources. Neither standard macroeconomic models that abstract from financial intermediation nor traditional models of the 'bank lending channel' are adequate as a basis for understanding the recent crisis. Instead we need models in which intermediation plays a crucial role, but in which intermediation is modeled in a way that better conforms to current institutional realities. In particular, we need models that recognize that a market-based financial system-one in which intermediaries fund themselves by selling securities in competitive markets, rather than collecting deposits subject to reserve requirements-is not the same as a frictionless system. I sketch the basic elements of an approach that allows financial intermediation and credit frictions to be integrated into macroeconomic analysis in a straightforward way. I show how the model can be used to analyze the macroeconomic consequences of the recent financial crisis and conclude with a discussion of some implications of the model for the conduct of monetary policy. [ABSTRACT FROM AUTHOR]

Profiles Leon H. Keyserling, author of the Full Employment Act of 1946 and first vice chairman and second chairman of the Council of Economic Advisers to the President in the U.S. Role of Keyserling in the creation of economic policy; His views on inflation; Considerations in economic policy-making.

The article presents a microfounded approach to monetary theory, justified by the claim that we need a deeper understanding of the economic problem that money is solving to conduct a proper positive and normative analysis of monetary policy. The search-theoretic approach to monetary theory has proved a fruitful approach for studying a set of obstacles to barter exchange that give rise to a demand for money. As of yet, however, this approach has not gone far beyond existing, reduced-form models of the problems of cash management and noncash payment technologies. In the data, it appears that money, as traditionally defined, is rapidly disappearing from U.S. households' portfolios. The author speculates that innovation by banks in addressing these problems may be playing the key role in shaping the demand for money by U.S. households and lowering the costs of decentralized exchange. It appears that U.S. businesses and households are using a wide array of alternative payment mechanisms, each with its own costs and benefits, to accomplish a huge volume of transactions.

Assesses the effects of monetary policy on the U.S. economy. Response of the economy to the changes in the level of productivity; Role of central bank in keeping the price level in line with the level of productivity; Comparison of output, employment and investment.

The current recovery remains vulnerable, with unusually weak investment and job creation for the recovery phase of a cycle. The Administration's tax proposal mitigates risk of weak short-term growth while enhancing long-term growth. Of particular note for the long run is the reduction of the cost of capital to business by reducing double taxation of corporate earnings -- a tax whose burden falls heavily on workers. Effects of the tax plan on federal deficits will not be substantial enough to place a long-term burden on the economy. [ABSTRACT FROM AUTHOR]

Fiscal stimulus has long been de-emphasized as a policy tool in the United States. In the three decades following the publication of John Maynard Keynes's General Theory of Employment, Interest, and Money in 1936, countercyclical fiscal policy achieved a gradual ascendancy within the economics profession and in the practical realm of economic policy. By the 1960s, it was widely agreed that fiscal policy should be used to counter fluctuations in the economy. To counter a recession, taxes should be cut, cash transfer payments (such as unemployment insurance benefits) increased, and government purchases of goods and services increased. But the past three decades have witnessed the decline and fall of countercyclical fiscal policy in both theory and practice. The majority of economists have concluded that monetary policy alone should be used to stabilize the economy, and a minority have argued that the government should not use either monetary or fiscal policy for that purpose. In an article titled "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Paul Krugman asks whether monetary policy has the power to rescue a depressed economy when the interest rate is already near zero.

The article presents information about the book "The Economic Consequences of the Vietnam War," by Anthony S. Campagna. It examines how the U.S. economy was affected by the Vietnam War over time and what economic policies followed in response. It uses a chronological approach, describing the early involvement in the war up through the U.S. administration under the presidency of John F. Kennedy.

Analyzes the influence of state-level economic conditions on presidential elections in the U.S. Determination of which politicians are held responsible by the electorate for changes in general economic conditions; Identification of the economic conditions that influence the electorate's voting; Establishment of the time period that the electorate uses to assess economic policies.

The article examines the current state of the policy-ineffectiveness debate over the applicability of the U.S. economy of neutrality proposition, according to which the choice among monetary policy feedback rules is irrelevant for the stochastic behavior of the unemployment rate in a neoclassical economy with rational expectations. Since the basic logic of this proposition has become well-known, I will not devote space to a formal statement or proof. It will be necessary to inject some interpretive comments. This need arises because formal proofs of the proposition refer to effects of alternative policy rules on the stochastic steady-state behavior of key macroeconomic variables. Thus the alternative policy rules are treated as permanently maintained, with transitional effects ignored. There are some main objections that have been raised by activist critics to the application of the proposition to the U.S. economy. One of the most prominent activist arguments for the inapplicability of the proposition has to do with persistence of positive or negative values of output or unemployment. The other main line of argument on the activist side has to do with prices. For the most part, the formal econometric evidence developed to date is not inconsistent with the neutrality proposition. But the power of existing tests is probably not high and, in any event, the evidence is not entirely clear-cut. Thus many economists may tend, at least for the present, to maintain adherence to their favorite theoretical model--whichever one offers the combination of features that seems essential.

This article discusses the state-level economic policy making that has been central to the strength of the U.S. national economy. By stimulating economic activity within their respective jurisdictions, states and their subdivisions provided and continue to provide the stimulus that carried the U.S. through a major national economic downturn and years of sustained growth. Underlying this assertion are two premises which seem to contradict conventional wisdom. First is the premise that states possess the capability to influence positively the operations of the national economy. Second is the premise that state and local economic development activities have an overall positive impact on the U.S. economy. The argument against state economy policy-making is based upon a belief that the actions of state and local governments are ineffectual, are prone to generate market inefficiencies and have little to do with critical decisions made by private sector decision-makers. Analysis of the factors which business leaders rank as most important in decisions regarding where to locate new facilities or to relocate old ones has been the most popular method of assessing the effectiveness of state development policy. State policies have consequences for the expansion of existing facilities and the location of branch operations. While state economic policies directed to business may not be a major factor in decisions to establish branch plants, there are of more importance in deciding where to locate a branch operation once the decision to branch has been made.