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Home > Publications > Economic Research > Economic Review

Economic Review

Contains articles on monetary theory and policy, banking and finance, and the payment system. Its predecessor is Economic Review, published 1974-1992.
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Recent Issues


Nov/Dec 1992 Vol. 78 No. 6


Money Market Futures

By Anatoli Kuprianov

Virtually all financial innovation in the U.S. money market during the past 20 years has centered on interest rate derivatives, including futures and swaps. Furthermore, money market futures--especially futures contracts on Eurodollar time deposits--...

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Forecasting the Effects of Reduced Defense Spending

By Peter N. Ireland & Christopher Otrok

Forecasts from a vector autoregressive model indicate that the substantial cuts in defense spending proposed by the Bush Administration in 1991 are likely to reduce GNP in both the short run and the long run. These forecasts hold even if proceeds from...

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A Simple Model of Irving Fisher's Price-Level Stabilization Rule


Fisher’s advice to the policymakers: Adjust the money stock to correct price-level deviations from target. He neglected to say whether money should respond (1) to the gap between actual and target prices, (2) to the gap’s rate of change, (3)...

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Sep/Oct 1992 Vol. 78 No. 5


Behind the Money Market: Clearing and Settling Money Market Instruments

By David L. Mengle

When a money market instrument is traded, the clearing and settlement process establishes the change in ownership. Because the process involves both costs and risks, money market participants have developed means of making clearing and settlement more...

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How Useful Is M2 Today?


One of the most difficult aspects of formulating monetary policy is assessing the impact of policy actions on the public's dollar spending. Historically, the behavior of M2 has offered considerable information about the impact of monetary policy on...

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Has M2 Demand Become Unstable?


Standard M2 demand regressions generate prediction errors in 1990, 1991, and 1992 that cumulate to an overprediction of M2 of about 4.2 to 4.3 percent by the second quarter of 1992. These prediction errors are not large and can be accounted for by M2...

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Jul/Aug 1992 Vol. 78 No. 4


The Case of the Reluctant Recovery

By William E. Cullison

Anecdotal evidence has it that the 1990-91 downturn was a predominantly white-collar, or middle management, recession. The data, however, show that the recession affected virtually all occupational groups. Moreover, by standards of past recessions, the...

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Oil Shocks, Monetary Policy, and Economic Activity

By Michael Dotsey & Max Reid

Various reasons have been given to explain downturns in U.S. economic activity since World War II. Romer and Romer (1989) argued that these recessions were primarily associated with monetary contractions, while Hamilton (1983) and others attributed them...

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May/Jun 1992 Vol. 78 No. 3


Credit Rationing by Loan Size in Commercial Loan Markets

By Stacey L. Schreft & Anne P. Villamil

The authors present a theoretical model in which a profit-maximizing lender may ration credit to businesses by restricting loan size. Such credit rationing occurs despite the absence of differences across borrowers in default risk or loan administration...

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In Search of a Stable, Short-Run M1 Demand Function


Conventional M1 demand functions reformulated using error-correction and cointegration techniques neither depict parameter stability nor satisfactorily explain short-run changes in M1. Thus, M1 remains unreliable as an indicator variable for monetary...

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Mar/Apr 1992 Vol. 78 No. 2


Marshallian Cross Diagrams and Their Uses before Alfred Marshall: The Origins of Supply and Demand Geometry


The early history of the partial equilibrium demand-and-supply-curve diagram confirms the adage that no scientific discovery is named for its original discoverer. For it was not Alfred Marshall but five of his predecessors who introduced the diagram...

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Jan/Feb 1992 Vol. 78 No. 1


Evidence of Improved Inventory Control

By Dan M. Bechter & Stephen Stanley

Inventory data applied to a standard partial stock-adjustment model demonstrate that inventory control, defined by desired marginal inventory-sales ratios and speeds of adjustment, improved in the last decade or so, particularly in the manufacturing...

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Indexed Bonds as an Aid to Monetary Policy


A measure of the public’s expectation of inflation would assist the Fed in formulating monetary policy. In order to create such a measure, the U.S. Treasury could issue its debt in two forms: standard debt and debt indexed for inflation. The...

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Nov/Dec 1991 Vol. 77 No. 6


Financial Evolution and the Long-Run Behavior of Velocity: New Evidence from U.S. Regional Data

By Peter N. Ireland

Innovations in the private financial sector influence the income velocity of money in an economy over the entire course of its development. In the early stages of growth, increased monetization, as manifested by the spread of the banking system, causes...

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Too Big to Fail: Origins, Consequences, and Outlook


The policy of too big to fail arose in part from pressures created by the lack of satisfactory bankruptcy arrangements for banks. It prevented market forces from closing banks and protected all uninsured depositors of large banks from loss in the event...

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Sep/Oct 1991 Vol. 77 No. 5


The Reaction of Interest Rates to the Employment Report: The Role of Policy Anticipations

By Timothy Q. Cook & Steven Korn

Interest rates have reacted strongly to the monthly employment report in recent years. The authors document the reaction of rates to the report and provide evidence that it has been stronger since the mid-1980s than in earlier years. Evidently the...

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Monetary Policy and Operating Procedures in New Zealand

By Michael Dotsey

The Reserve Bank of New Zealand operates in a highly deregulated financial environment which lacks any interest rate regulation or reserve requirements. Yet the Reserve Bank has been able to implement effective monetary policy through a quantity-based...

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International Trade and Payments Data: An Introduction

By Robert F. Graboyes

Global trade and payments data, although absolutely essential to an understanding of the pattern and direction of world commerce, are not completely unambiguous. Compilers of such data face numerous problems of definition and measurement of particular...

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Jul/Aug 1991 Vol. 77 No. 4


Why Is There Debt?


Most loan repayment agreements are largely noncontingent, and yet standard economic theory predicts that they should be highly contingent. An explanation is offered that relies on imperfect information and collateral. The theory suggests that perhaps...

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Loan Loss Reserves


Recent years have seen bank loan losses exceeded only by those of the Great Depression. This experience, along with tax and regulatory changes, has triggered changes in the reserve account through which banks provide for such losses...

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May/Jun 1991 Vol. 77 No. 3


An Error-Correction Model of U.S. M2 Demand


An error-correction model is used to study the long- and short-run determinants of U.S. demand for M2. The money demand function presented here exhibits parameter stability and predicts quite well the actual behavior of M2 growth in the 1980s...

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A Total Production Index for Washington, D.C.

By Dan M. Bechter, Zoltan Kenessey, Fred Siegmund & Ray D. Whitman

A heavy concentration of services characterizes the economy of the District of Columbia. Growth in the D.C. economy, although usually heavily insulated from the swings of the U.S. business cycle, varies in intensity and, sometimes, in direction. Now, a...

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The Stealth Budget: Unfunded Liabilities of the Federal Government


The federal budget is incomplete. Action have been taken that will require spending in the future; provision for that spending does not, however, appear in the budget accounts. As a result, stated federal spending does not reveal the total resource...

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Mar/Apr 1991 Vol. 77 No. 2


Productivity in Banking and Effects from Deregulation

By David B. Humphrey

Over the last decade, banking productivity growth has been quite low, between 0.60 to –0.07 percent a year. Deregulation has served to raise banking costs but not measured output. Consumers may have benefited, but banks have not...

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Survey Evidence of Tighter Credit Conditions: What Does It Mean?


Recent survey results from the Senior Loan Officer Opinion Survey indicate that, on net, many banks tightened their loan standards during 1990 and early 1991. This article investigates the implications of these results by comparing them to survey...

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Nonneutrality of Money in Classical Monetary Thought


Contrary to the strawman “classical” model of the textbooks, the original classical economists did not believe that money-stock changes affect only the price level and not real output and employment. Most classicals saw money as having...

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Jan/Feb 1991 Vol. 77 No. 1


A Reserve Bank for Richmond

By James Parthemos

In early 1914, Richmond’s civic leaders launched a well-planned and effectively executed campaign to make their city one of twelve selected as sites for the newly established Federal Reserve Banks...

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Reflections on Deposit Insurance

By Robert P. Black

A crucial public policy issue is the need for reform of the nation’s deposit insurance system. This article discusses the role of deposit insurance and outlines some proposals for reform...

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Money, Credit, Banking, and Payments System Policy


This article employs contract theory to analyze the evolution of the payments system. Insights gained are used subsequently to evaluate three prominent public payments system policies: monetary policy, central bank lending, and deposit insurance...

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