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Briefing
All Mortgages Are Not Created Equal
Housing experts have studied the relative performance of different types of mortgages during the housing crisis. But foreclosure analysis often overlooks distinctions between mortgages issued to occupant owners and those issued to non-occupant owners. This Economic Brief highlights the impact of non-occupant-owner mortgages on the housing crisis.
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A Closer Look at Japan's Rising Consumption Tax
Japan plans to raise its national consumption tax next week from 8 percent to 10 percent. Some commentators and economists have blamed previous consumption tax increases for causing recessions in 1997 and 2014, but little statistical analysis has been published to support or refute such claims. This Economic Brief highlights new evidence that significant changes in Japan's household consumption behavior did in fact coincide with the 1997 tax hike.
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TARGET2: symptom, not cause, of eurozone woes
In recent years, large positive and negative balances have arisen in TARGET2, the interbank settlement and payments system of the Eurozone. These balances show that the Deutsche Bundesbank, the central bank of Germany, has become a large net creditor to the European Central Bank (ECB). Conversely, they show that central banks in the periphery nations of Portugal, Ireland, Italy, Greece, and Spain have become significant net debtors to the ECB. Critics of the Eurosystem have portrayed these balances as a "stealth bailout" of the periphery nations, but TARGET2 merely reflects persistent ...
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Using Inventories to Help Explain Post-1984 Business Cycles
Real business cycle (RBC) models have been highly successful at explaining business cycles that occurred before 1984. But since then, shifts in comovements and relative volatilities of key economic aggregates have challenged their preeminence. One possible refinement of the standard RBC model is to include multiple stages of production. This extension allows researchers to use inventory data to estimate the discount rate that firms use to assess future income streams. The results indicate that variations in the discount rate reflect financial frictions that have become significant drivers of ...
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Inflation Targeting: Could Bad Luck Explain Persistent One-Sided Misses?
In January 2012, the Federal Open Market Committee set an explicit inflation target of 2 percent, but the annual inflation rate has been 0.25 percentage points or more below that target for the past 10 quarters. Extended periods of one-sided misses are common among inflation-targeting countries, but it is not clear whether these persistent deviations are caused by structural changes, bad policy or bad luck. Analysis of the statistical properties of the inflation process in the United States suggests that bad luck remains a plausible explanation for the FOMC's current string of one-sided ...
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How Should the Fed Interpret Slow Wage Growth?
During the current recovery, policymakers have debated whether slow wage growth indicates labor market "slack" that is not adequately reflected in the unemployment rate alone. The relationship?or lack thereof?between the unemployment rate and wage growth has challenged macroeconomists for decades. Empirical studies using micro data find that individual wages are procyclical, but attempting to use aggregate measures of wage growth to determine the level of "slack" in the labor market would be highly difficult and potentially misleading.
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Buyers' Ability and Willingness to Shop Around: An Explanation for Price Dispersion
For many years, economists have observed substantial and pervasive price dispersion ? wide variations in price for the same product. Some economists have attributed price dispersion to "ignorance in the market," a lack of information among buyers and sellers. More recently, economists at the Richmond Fed and the University of Pennsylvania have developed a model that combines price dispersion theory with intertemporal price discrimination theory to suggest that buyers' differing ability and willingness to shop around might explain price dispersion.
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Putting the Beveridge Curve Back to Work
After the recession of 2007-09, the Beveridge curve seemed to shift significantly outward as the job-vacancy rate increased with no corresponding decrease in the unemployment rate. A new time-varying analysis of the Beveridge curve from the early 1950s through 2011 could lend support to the idea that skill mismatch due to technological change is the most likely driver of the curve's outward shifts, including its most recent movement. This analysis suggests that expansionary monetary policy has done little in recent years to reduce the unemployment rate.
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Presidential Politics and Monetary Policy: Lessons from the 1896 Election
The U.S. presidential election of 1896 provides an excellent natural experiment to measure the impact of exchange-rate uncertainty on bank balance sheets and the broader economy. The evidence suggests that the election's contentious free-silver debate significantly constrained banking activity and real economic activity by creating greater uncertainty about U.S. commitment to the gold standard. This finding reinforces the modern-day wisdom of insulating monetary policy from politics.
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MMT and Government Finance: You Can't Always Get What You Want
During the past 25 years, low interest rates and highly expansionary monetary policy with little apparent inflation have created the illusion that a government can simply print money to fund exorbitant deficit spending with no repercussions. This core tenet of so-called "modern monetary theory" ignores the fact that deficit spending is constrained in the long run by a government's ability to satisfy creditors.