Economic Quarterly From 2003 - Federal Reserve Bank of Richmond

Fall 2003 Vol. 89 No. 4

Boom and Bust in Telecommunications

By Elise A. Couper, John P. Hejkal & Alexander L. Wolman

A transformation of the technological and regulatory environment for telecommunications precipitated a massive boom in the sector, beginning in 1997. Market forecasts of the future of telecommunications became highly uncertain and, as it turned out,...

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Why Does Consumer Sentiment Predict Household Spending?

By Yash P. Mehra & Elliot W. Martin

Consumer sentiment may predict future household spending, either because sentiment is an independent causal force or because it foreshadows current economic conditions. The empirical evidence we present favors the second interpretation. The evidence in...

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Implications of the Capital-Embodiment Revolution for Directed R&D and Wage Inequality

By Andreas Hornstein & Per Krusell

The skill premium—the wage of skilled labor relative to the wage of unskilled labor—has increased substantially in the United States since the 1970s. The higher skill premium has been attributed to skill-biased factor-specific technical ...

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Firms, Assignments, and Earnings

By Edward Simpson Prescott

Earnings within a firm usually increase with job rank. Earnings across firms usually increase with firm size. An assignment model addresses these facts. People are assigned to firms and to jobs within these firms by their managerial talent. In...

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Summer 2003 Vol. 89 No. 3

Accounting for Corporate Behavior

By John A. Weinberg

The accounting scandals of 2002 highlight the fundamental problem of corporate governance: how can a large public corporation align the incentives of a small group of professional managers with the interest of its widely dispersed shareholders? The...

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Japanese Monetary Policy and Deflation

By Robert L. Hetzel

The price level is falling in Japan. To end deflation, the Bank of Japan should move to a strategy of actively creating bank reserves and money in response to price level deviations from an explicit target. Under the current policy, bank reserves are...

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The Euro and Inflation Divergence in Europe

By Margarida Duarte

In January 1999, eleven European countries abandoned their respective national currencies and monetary independence to adopt a common currency, the Euro. Inflation dispersion and inflation differentials (with respect to German inflation) within the Euro...

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How Did Leading Indicator Forecasts Perform During the 2001 Recession

By James H. Stock & Mark W. Watson

The 2001 recession differed from other recent recessions in its cause, severity, and scope. Professional forecasters found this recession difficult to forecast. A few leading indicators (stock prices, term spreads, unemployment claims) predicted that...

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Spring 2003 Vol. 89 No. 2

Economic Fundamentals and Bank Runs

By Huberto M. Ennis

Recent research has argued that the multiple-equilibria explanation of bank runs is inconsistent with a basic stylized fact: bank runs tend to occur under poor economic conditions. This conclusion is not well justified. Reasonable theories that explain...

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Monetary Policy in a Low Inflation Environment

By J. Alfred Broaddus, Jr.

Hard-won credibility is crucial to the Fed's two-pronged strategy of combining the maintenance of price stability with active short-term countercyclical interest rate policy. In recent years, credibility has enabled the Fed to preempt inflation without...

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Unemployment Insurance and Personal Bankruptcy

By Kartik Athreya

As an implicit form of insurance, bankruptcy may augment, substitute for, or limit other forms of insurance. Conversely, the presence of other forms of insurance may enhance or limit the usefulness of bankruptcy. An investigation of the interaction...

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Banking and Commerce: Tear Down This Wall?

By John R. Walter

Banking/commerce combinations, whereby a banking firm conducts commercial activities such as manufacturing, have long been prohibited in the United States. The traditional concerns with such combinations—conflicts of interest and the spread of...

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Winter 2003 Vol. 89 No. 1

Japanese Monetary Policy, 1991-2001

By Bennett T. McCallum

Analysis suggests that Bank of Japan (BOJ) policy has been insufficiently expansionary for over a decade; that the BOJ has faced special problems because of the zero lower bound on interest rates; and that the most promising approach would entail rapid...

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Efficient Public Investment in a Model with Transition Dynamics

By Pierre-Daniel G. Sarte & Jorge Soares

In 2001, the U.S. government spent $290 billion on public investments spanning such diverse projects as highways, aircraft electronics, sewer and water systems, government buildings, and conservation. This amount represents roughly 3 percent of GDP ...

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Potential Consequences of Linear Approximation in Economics

By Alexander L. Wolman & Elise A. Couper

Linear approximation is a popular tool for studying the properties of dynamic economic models. Advocates of linearization have always acknowledged and emphasized that it may be inaccurate unless the researcher restricts attention to small deviations...

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The Cyclical Behavior of Prices and Employee Compensation

By Roy H. Webb

Recent empirical analysis has challenged the common belief that prices are procyclical. Here the analysis is augmented with data on average movements by phase of business cycles. While the data can be interpreted to be consistent with countercyclical...

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