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Journal Article
The economic benefits and risks of derivative securities
Certain events have raised concern about the risks associated with derivatives trading--witness Orange County, California or Procter & Gamble, both of which lost large sums of money using derivatives. However, the popular discussion often loses track of the benefits derivatives hold for firms, investors, and the economy as a whole. Have derivatives received a bum rap? Keith Sill admits that derivatives have risks, especially to the uninitiated, but they also have a great deal of value for the economy as well
Journal Article
Forecasts, indicators and monetary policy
When setting monetary policy, should policymakers target variables such as commodity prices or interest rate spreads, which are sensitive to the market's expectations of inflation? Or are variables such as money growth, which are tied to the underlying causes of inflation and economic growth, better indicators of the economy's path? Keith Sill considers these questions as he reviews indicators past and present
Journal Article
The macroeconomics of oil shocks
For various reasons, oil-price increases may lead to significant slowdowns in economic growth. Five of the last seven U.S. recessions were preceded by significant increases in the price of oil. In ?The Macroeconomics of Oil Shocks,? Keith Sill examines the effect of changes in oil prices on U.S. economic activity, focusing on how runups in the price of oil can affect output growth and inflation. He also discusses the channels by which oil-price increases might affect the economy and the historical evidence on the relationship between oil prices, economic growth, and inflation.
Journal Article
Restructuring during recessions: a silver lining in the cloud?
Recessions usually mean bad times for many workers and firms: companies close; jobs are lost. However, recessions can present certain opportunities for organizations. For example, restructuring can be less costly during a recession: workers can be retrained and machines upgraded. In turn, these actions position a company to take advantage of the next economic upturn. In this article, Keith Sill discusses the "creative destruction" that takes place during recessions and outlines some of the policy implications of restructuring
Journal Article
Widening the wage gap: the skill premium and technology
Our final article looks at the difference in wages between high-skill workers (such as those who might work in biotech) and low-skill workers. This skill premium has increased dramatically over the past 30 years. Although economists are still debating the causes of this increase, it seems likely that skill-biased technical change has played a large role. As companies have invested in new technologies, demand for workers who can use them has surged. In "Widening the Wage Gap: The Skill Premium and Technology," Keith Sill reviews the literature and tells us why some theories fall flat and ...
Journal Article
The gains from international risk-sharing
The author examines the data on just how much risk-sharing currently takes place in both developed and developing countries. He also considers the question of whether significant unexploited gains from risk-sharing exist across borders.
Journal Article
The evolution of the world income distribution
There is tremendous disparity in the levels of individuals? incomes across countries. However, this disparity in per capita income has not always existed. In ?The Evolution of the World Income Distribution,? Keith Sill investigates some facts about the evolution of per capita income across countries and reviews a simple model that broadly captures the observed evolution of the world income distribution since 1800. He then discusses what predictions can be made about future cross-country distributions of income and some policy prescriptions that follow from our understanding of the past and ...
Working Paper
The long and large decline in state employment growth volatility
This study documents a general decline in the volatility of employment growth during the period 1956 to 2002 and examines its possible sources. The authors use a panel design that exploits the considerable state-level variation in volatility during the period. The roles of monetary policy, oil prices, industrial employment shifts and a coincident index of business cycle variables are explored. Overall, these four variables taken together explain as much as 31 percent of the fluctuations in employment growth volatility. Individually, each of the four factors is found to have significantly ...
Working Paper
A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns
Are the recessionary consequences of oil-price shocks due to oil-price shocks themselves or to contractionary monetary policies that arise in response to inflation concerns engendered by rising oil prices? Can systematic monetary policy be used to alleviate the consequences of oil shocks on the economy? This paper builds a dynamic general equilibrium model of monopolistic competition in which oil and money matter to study these questions. The economy's response to oil-price shocks is examined under a variety of monetary policy rules in environments with flexible and sticky prices. The authors ...
Working Paper
Analyzing data revisions with a dynamic stochastic general equilibrium model
We use a structural dynamic stochastic general equilibrium model to investigate how initial data releases of key macroeconomic aggregates are related to final revised versions and how identified aggregate shocks influence data revisions. The analysis sheds light on how well preliminary data approximate final data and on how policy makers might condition their view of the preliminary data when formulating policy actions. The results suggest that monetary policy shocks and multifactor productivity shocks lead to predictable revisions to the initial release data on output growth and inflation.