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Journal Article
Interprovincial inequality in China
In this Economic Letter, we document the increasing income inequality among Chinese provinces over the past two decades. Our discussion highlights three important facts. First, economic growth has lifted living standards throughout China, with all provinces gaining in absolute terms. Second, economic growth has benefited some provinces more than others, increasing regional income inequality. Third, no single explanation can account for the steady increase in inequality among provinces over time. These observations suggest that China, like many industrialized nations, will continue to struggle ...
Journal Article
Prospects for China's corporate bond market
This Economic Letter explores whether China's corporate bond market is likely to develop as an alternative to bank financing for private Chinese firms.
Journal Article
Is transition to inflation targeting good for growth?
Inflation targeting is often considered the most appropriate monetary policy framework for central banks seeking price stability. While a target can help stabilize inflation, the implications for a country?s growth are less clear. Advanced economies experienced higher economic growth immediately following the transition to inflation targeting. However, developing economies experienced only modest gains that were close to their trend growth. One explanation is that transitioning to a low-inflation regime can be more costly for less stable countries that have higher inflation expectations and ...
Journal Article
Aggregation in bank stress tests
How well stress tests measure a bank?s ability to survive adverse conditions depends on the statistical modeling approach used. Banks can access data on loan characteristics to precisely estimate individual default risk. However, macroeconomic scenarios used for stress tests?as well as the reports banks must provide?are for a bank?s entire portfolio. So, is it better to aggregate the data before or after applying the model? Research suggests a middle-of-the-road approach that applies models to data aggregated at an intermediate level can produce accurate and stable results.
Journal Article
The EMU effect on the currency denomination of international bonds
This Economic Letter reviews recent work that focuses on micro-level data to study the impact of the launch of the EMU on the currency denomination of international bonds.
Journal Article
Commodity prices and PCE inflation
Commodity prices have soared several times in recent years, raising concerns that overall inflation could rise substantially. However, crops, oil, and natural gas make up only about 5% of the cost of U.S. consumer goods and services. Thus, about one percentage point of the 10% cumulative inflation since 2007 reflects price rises in these important commodity categories. When the contribution of these commodities is subtracted from overall inflation, the resulting pattern is remarkably similar to that of core inflation, which excludes food and energy prices.
Journal Article
Are U.S. corporate bonds exposed to Europe?
The European sovereign debt crisis has created tensions in the global corporate debt market. Investors increasingly hold international assets and companies issue bonds in many countries. Thus, shocks to the European corporate bond market are readily transmitted to the U.S. corporate bond market. However, the rate of transmission is less than one-to-one. Moreover, different segments of the U.S. market vary in the magnitude of their response to European shocks. In particular, higher-rated nonfinancial borrowers and lower-rated financial borrowers are less affected on average.
Journal Article
How Futures Trading Changed Bitcoin Prices
From Bitcoin?s inception in 2009 through mid-2017, its price remained under $4,000. In the second half of 2017, it climbed dramatically to nearly $20,000, but descended rapidly starting in mid-December. The peak price coincided with the introduction of bitcoin futures trading on the Chicago Mercantile Exchange. The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. Rather, it is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.
Journal Article
Pricey oil, cheap natural gas, and energy costs
Historically, oil and natural gas prices have moved hand in hand. However, in the past few years, while oil prices climbed to near record peaks, natural gas prices fell to levels not seen since the mid-1970s as a result of new hydraulic fracturing technology. U.S. consumer energy expenditures are still mainly driven by oil prices, so household energy bills got little relief as natural gas prices fell. Moreover, even though the United States has trimmed crude oil imports, they still equal a substantial share of gross domestic product.
Journal Article
The U.S. content of “Made in China”
Goods and services from China accounted for only 2.7% of U.S. personal consumption expenditures in 2010, of which less than half reflected the actual costs of Chinese imports. The rest went to U.S. businesses and workers transporting, selling, and marketing goods carrying the "Made in China" label. Although the fraction is higher when the imported content of goods made in the United States is considered, Chinese imports still make up only a small share of total U.S. consumer spending. This suggests that Chinese inflation will have little direct effect on U.S. consumer prices.