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
Common trends and common cycles in regional per capita incomes
Cyclical dynamics at the regional level are investigated using newly developed times-series techniques that allow a decomposition of aggregate data into common trends and common cycles. The authors apply the common-trend/common-cycle representation to per capita personal income for the eight BEA regions using quarterly data for the period 1948:1-93:4. Their analysis reveals considerable differences in the volatility of regional cycles. Controlling for differences in volatility, the authors find a great deal of comovement in the cyclical response of four regions (New England, Mideast, Great ...
The cyclical volatility of interest rates
Interest rates change in response to a variety of economic events, such as changes in Fed policy, crises in financial markets, and changes in prospects for long-term economic growth and inflation. But such events are sporadic, and interest rates show a more regular pattern of volatility that corresponds to the business cycle. In this article, Keith Sill examines some facts and theory about the cyclical volatility of short-term and long-term interest rates.
Regional employment dynamics
There is a widespread belief that different geographic regions of the U.S. respond differently to economic shocks, perhaps because of factors such as differences in the composition of regional output, adjustment costs, or other frictions. The author investigates the comovement of regional employment series using a common features framework. Little evidence is found to suggest that regions move synchronously; rather, it takes about three quarters before regions respond in a similar fashion to a common shock. The author identifies leading and lagging regions. None of the regional employment ...
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 2005 and examines its possible sources. Estimates from a state-level pooled cross-section/time-series model indicate that aggregate and state-level factors each account for an important share of the total explained variation in state-level volatility. Specifically, state-level factors have contributed as much as 16 percent, while aggregate factors are found to account for up to 46 percent of the variation. With regard to state-level factors, the share of state total employment in ...
Measuring economic uncertainty using the Survey of Professional Forecasters
Uncertainty about how the economy will evolve is a key concern for households and firms. People?s views on how likely it is that the economy will be growing, stagnating, or in recession help shape the actions they take today. Consequently, how households and firms respond to uncertainty has implications for economic activity. In addition, uncertainty matters to policymakers: Monetary policymakers recognize that if uncertainty about future inflation is high, decision-making by households and firms becomes more complicated. In this article, Keith Sill describes how uncertainty can be measured ...
Inflation dynamics and the New Keynesian Phillips curve
A 1977 amendment to the Federal Reserve Act states that the Fed?s mandate is ?to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.? Moderate long-term interest rates require low and stable inflation. Monetary policymakers use instruments such as a short-term interest rate to guide the economy with the aim of achieving an inflation objective. To help guide their decisions, monetary policymakers benefit from having a reliable theory of how inflation is determined, one that relates the setting of their instrument to the unexpected events ...
The cyclical behavior of regional per capita incomes in the postwar period
This paper examines the cyclical dynamics of per capita personal income for the major U.S. regions during the 1953:3-95:2 period. The analysis reveals considerable differences in the volatility of regional cycles. Controlling for differences in volatility, the authors find a great deal of comovement in the cyclical response of four regions (New England, Southeast, Southwest, and Far West), which the authors call the core region, and the nation. The authors also find a great deal of comovement between the Mideast and Plains regions, but these regions are only weakly correlated with national ...
On the stability of employment growth: a postwar view from the U.S. states.
In 1952, the average quarterly volatility of U.S. state employment growth stood at 1.5 percent. By 1995, employment growth volatility came in at just under 0.5 percent. While all states shared in the decline, some states declined much more dramatically than others. We analyze aspects of this decline using new data covering industry employment by state during the postwar period. Estimates from a pooled cross-section/time-series model corrected for spatial dependence indicate that fluctuations in state-specific and aggregate variables have both played an important role in explaining volatility ...