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Discussion Paper
Evaluating the macroeconomic effects of a temporary investment tax credit
As part of a fiscal stimulus package, some members of Congress have recently proposed a temporary investment subsidy. This paper uses the neoclassical growth model to evaluate the likely macroeconomic effects of such a subsidy. The model predicts a 0.8 percentage point increase in output growth for the quarter in which the policy is implemented. In subsequent quarters, the output growth effects are negligible. As the subsidy ends, output growth falls by 1 percentage point before returning to its trend growth rate. While a permanent subsidy will lead to more capital deepening in the long ...
Discussion Paper
An incentive-compatible suggestion for seigniorage sharing with dollarizing countries
Sixteen countries now treat the U.S. dollar as legal tender. Although dollarizing can help emerging-market countries gain monetary credibility and avoid currency crises, many do not want to give up the seigniorage revenues associated with issuing their own fiat currency. This article offers a proposal for seigniorage sharing.
Discussion Paper
Fiscal and generational imbalances: new budget measures for new budget priorities
This paper describes the deficiencies of the measures used to calculate the federal budget, make revenue and spending projections, and assess the sustainability of current fiscal policies. The nature of the deficiencies hides the tremendous impact that Social Security and Medicare commitments will have on the budget in the future, given the way the programs are structured currently and the momentous demographic shift underway as the baby boom generation approaches retirement age. This paper proposes two new simple measures that will enable government officials and the public to calculate more ...
Discussion Paper
International financial flows and the current business expansion
Since 1992, the United States has enjoyed sustained, rapid economic expansion characterized by rising labor force participation, booming net investment spending for information equipment and computer software, and strong productivity growth. Substantial foreign capital inflows have helped to finance the investment boom as well as a rise in private domestic consumption spending. This paper illustrates how capital inflows can be both a bane and a boon to economic growth.
Discussion Paper
Does wage inflation cause price inflation?
Is there any evidence to support the assumption that increased wages cause inflation? This study updates and expands earlier research into this question and finds little support for the view that higher wages cause higher prices. On the contrary, more evidence is found for higher prices leading to wage growth.
Discussion Paper
A conference on consumer protection in financial product markets
A conference organized by the Federal Reserve Bank of Cleveland engendered an informative discussion of consumer protection in financial products markets. Anticipating significant changes in financial regulation, the conference asked the question, "How could regulators successfully protect consumers?" It intentionally looked beyond the existing institutions. The first of three panels discussed how consumers gather information and process it to make purchase decisions. Lessons learned from research on food labeling and shopping were discussed. Another panel examined the roles of ...
Discussion Paper
Walking on a fence: Brazils public-sector debt
Brazil is walking on a fence between sustainable and unsustainable public-debt dynamics. How it treads could affect not only its own economic prosperity but that of its neighbors, emerging markets in general, and U.S. financial institutions in particular. Relatively small improvements in Brazilian economic conditions and a continuation of that countrys recent fiscal improvements could push Brazil in the right direction, particularly if the dollar continues to depreciate.
Discussion Paper
Who holds the toxic waste? An investigation of CMO holdings
Toxic waste refers to the riskiest derivative structures arising from collateralized mortgage obligations (CMOs). We use simulations to predict how this risk would manifest itself in various interest rate environments. We also look for evidence on the total dollar value of these securities, who holds them, and how much they hold. Very limited public information is available, but commercial banks are required to report on their holdings, and we investigate the extent to which the risk is concentrated in that sector.
Discussion Paper
On the resolution of financial crises: the Swedish experience
Sweden was one of the Scandinavian countries experiencing a severe financial crisis In the late 1980s and early 1990s. I review the policy choices and external factors that pushed the countrys financial system over the edge and then examine the steps the government took to make its resolution of the crisis one of the most successful in the past 30 years.
Discussion Paper
Does government intervention in the small-firm credit market help economic performance?
The guaranteed lending programs of the Small Business Administration (SBA) are large and growing rapidly. The SBAs fiscal year 2008 performance budget calls for $25 billion in guaranteed loans for small businessesa new record for the agency. Some critics of SBA programs suggest they do not help small businesses or overall economic performance. Other critics suggest that these programs unfairly benefit the financial institutions that participate in SBAs guaranteed lending programs. While very little serious empirical evidence exists on whether the net economic impact of the SBAs guaranteed ...