Journal Article
From market failure to market-based solution: policy lessons from clean air legislation
Fitzgerald, Terry J.; Pelz, Eduard A. (2001-08)
How can the United States balance its need for increased energy production with national and global environmental concerns? This Commentary argues that competitive markets can be used in unique and surprising ways to address environmental needs without placing an excessive burden on citizens.
Economic Commentary , Issue Aug

Working Paper
BankCaR (Bank Capital-at-Risk): a credit risk model for U.S. commercial bank charge-offs
Pelz, Eduard A.; Frye, Jon (2008)
BankCaR is a credit risk model that forecasts the distribution of a commercial bank's charge-offs. The distribution depends only on systematic factors; BankCaR takes each bank and projects its expected charge-off across a distribution of good years and bad years. Since most bank failures occur in bad years, this analysis has promise for both banks and bank supervisors. In BankCaR, charge-offs depend on the bank's loan balances and the charge-off rates of twelve categories of lending. A joint distribution of the twelve charge-off rates is calibrated to a long history of regulatory reporting ...
Working Paper Series , Paper WP-08-03

Journal Article
Investor expectations and fundamentals: disappointment ahead?
Carlson, John B.; Pelz, Eduard A. (2000-05)
The average annual return of the S&P 500 since 1994 has exceeded 25 percent. Confidence is high and investors are looking forward to continued above-average returns. The authors of this Economic Commentary attempt to reconcile investors' expectations with a decline in the equity premium, using a standard approach to stock-price valuation.
Economic Commentary , Issue May

Journal Article
Mutual funds, fee transparency, and competition
Carlson, John B.; Sahinoz, Erkin Y.; Pelz, Eduard A. (2004-03)
Mutual funds enable small, less experienced investors to hold diversified portfolios of stocks and bonds at relatively low costs. Though the mutual fund market is competitive in many ways, fees can vary substantially for what are essentially identical products. This may be due to bundling of services, but it may also reflect some confusion on the part of less experienced investors, which inhibits comparative shopping among funds. Suggested reforms for improved fee disclosure seek to make fees more transparent for less informed investors and should improve competitive discipline among funds.
Economic Commentary , Issue Mar

Journal Article
Do energy price spikes cause inflation?
Pelz, Eduard A.; Humpage, Owen F. (2003-04)
Many people mistakenly believe that a sharp rise in the price of energy is necessarily inflationary. They fail to understand that energy prices adjust with the demand and supply of energy, whereas inflation responds to the demand and supply of money. This Economic Commentary explains that the Federal Reserve can do nothing about relative energy prices, but can determine how relative energy price shocks are reflected in the overall level of prices. Over the last twenty years, the inflationary consequences of energy price shocks, while significant, have been fairly subdued.
Economic Commentary , Issue Apr

Journal Article
A retrospective on the stock market in 2000
Carlson, John B.; Pelz, Eduard A. (2001-01)
During late 1998 and much of 1999, the price earnings ratio (P/E) of the S&P 500 index reached unprecedented levels. This was especially evident for the largest 18 technology firms, whose market-weighted P/E exceeded 125 in March of last year. These valuations, which dominated the NASDAQ, proved unsustainable. This Commentary reviews factors that affect P/E ratios and concludes that investors' expectations for earnings growth were overly optimistic, especially for large-cap technology stocks, and that investors could have known this before the bubble burst.
Economic Commentary , Issue Jan

Working Paper
Will the valuation ratios revert to their historical means? Some evidence from breakpoint tests
Wohar, Mark E.; Carlson, John B.; Pelz, Eduard A. (2001)
If valuation ratios return to their historical means any time soon, then equity prices must fall substantially, or earnings and dividends must accelerate sharply, or some combination of these events must occur. Historical patterns over the past century suggest that stock prices will fall to align valuation ratios with their means. Of course, the means of the valuation ratios could have changed. To assess the likelihood of such changes, the authors employ breakpoint tests, which allow for multiple breakpoints at unknown break dates. The authors also review alternative explanations for changes ...
Working Papers (Old Series) , Paper 0113

Working Paper
Do energy-price shocks affect core-price measures?
Pelz, Eduard A.; Humpage, Owen F. (2002)
This paper investigates the relationship between energy-price shocks and three core measures of inflation in a vector autoregression model that incorporates measures of monetary policy and inflation expectations. The sample set includes data at monthly frequencies from 1980 through 2000. The authors find that that positive energy-price shocks have significant, though small, effects on all core-price measures after a lag of 12 to 18 months, but that negative shocks have no discernable impact. The results suggest that relative energy-price changes do not distort the inflation signals that ...
Working Papers (Old Series) , Paper 0215