Government-subsidized training: a plan for prosperity?
Many analysts believe that the United States should subsidize training to increase its workers' skills because employers don't provide enough. This Commentary asks whether the present level of training is truly insufficient, or whether firms' incentives may already be in synch with the social costs and benefits of training.
Perils of price deflations: an analysis of the Great Depression
If a central bank adopted a zero inflation target, it would, in practice, occasionally deviate up and down from that rate, and the economy would experience episodes of mild inflation and deflation. Is deflation-a decrease in the level of prices-a cause for concern? Deflation can cause output to decline, but to what extent? This Economic Commentary explores how much of a problem deflation might be for modern economies by estimating the effect of massive price declines on output during the Great Depression. The authors find that while deflation can cause output to decline, mild episodes of ...
Regional variations in white-black earnings
An examination of why black Americans' earnings continue to lag whites' and why the problem is especially acute in the southern states. Better understanding of the factors driving regional pay differentials can help explain some of the disparities at the national level and is also applicable to a wide variety of other public policy issues.
Do Forecasters Agree on a Taylor Rule?
Forecasters? projections of interest rates vary a great deal. We use a Taylor rule to investigate two possible reasons why. Namely, do differences arise because forecasters have different projections for output growth or inflation, or do they arise because forecasters follow different guidelines to predict what the Federal Reserve will do with the federal funds rate? We find evidence for both explanations. Forecasters appear to use very different projections for inflation and output growth, but they also seem to use dramatically different Taylor rule coefficients.
Inertial Taylor rules: the benefit of signaling future policy
This article traces the consequences of an energy shock on the economy under two different monetary policy rules: (i) a standard Taylor rule, where the Fed responds to inflation and the output gap, and (ii) a Taylor rule with inertia, where the Fed moves slowly to the rate predicted by the standard rule. The authors show that, with both sticky wages and sticky prices, the outcome of an inertial Taylor rule is superior to that of the standard rule, in the sense that inflation is lower and output is higher following an adverse energy shock. However, if prices alone are sticky, the results are ...
Examining the microfoundations of market incentives for asset-backed lending
A review of four papers that model market-based (as opposed to regulatory-based) forces driving the asset-backed lending market, revealing that under certain conditions, the information costs that make financial markets important as conduits of credit can also create nonregulatory incentives for asset-backed lending as an efficient funding mode.
Magnification effects and acyclical real wages
An analysis of a one-period, two-sector model in which firms must pay a fixed cost of hiring. The authors show that this type of model results in more employment variability and less-procyclical wages than do models without fixed hiring costs.
Real indeterminacy in monetary models with nominal interest rate distortions: the problem with inflation targets
This paper demonstrates that in a standard monetary model with a cash-in-advance constraint on consumption there exists real indeterminacy whenever the nominal interest rate moves too closely with the real rate. A particular example of such a policy is an inflation rate target. This is not a knife-edge result. The conclusion is robust to a wide range of calibrations and to a monetary environment that allows for endogenous velocity.
Price-level and interest-rate targeting in a model with sticky prices
An examination of a standard sticky-price monetary model whose conditions are perturbed relative to the canonical real-business-cycle model by two varying distortions: marginal cost and the nominal rate of interest. The paper explores the implications of two monetary policies that are frequently advocated: (1) an inflation target and (2) an interest rate target.
Bracket creep in the age of indexing: have we solved the problem?
An examination of the inflation-indexing provisions contained in the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986.