AUTHORS: Meyer, Seth
How well are the states of the Eighth Federal Reserve District prepared for the next recession?
Economic downturns often force state policymakers to enact sizable tax increases or spending cuts to close budget shortfalls. In this paper the authors make use of a Markov-switching regression model to empirically describe the expansions and contractions in the states of the Eighth Federal Reserve District. They use the estimated parameters from the switching regressions to form probability distributions of the revenue shortfalls states are likely to encounter in future slowdowns. This allows them to estimate the probability that each state's projected fiscal-year-end balances will be sufficient to offset the fiscal stress from a recession.
AUTHORS: Wagner, Gary A.; Elder, Erick
State tax revenue growth and volatility
Macroeconomic conditions and tax structures jointly determine the growth and volatility of state tax revenues. Since a variety of economic conditions exist among states, government policymakers should carefully anticipate and consider the possible impacts of proposed tax reform and revenue enhancements on the long-term growth and volatility of their unique tax revenue portfolios. In the short run, states generally cannot alter the volatility and growth rates of their economies. They can, however, change the composition of their tax portfolios to minimize the effects of the business cycle on their fiscal health. For this reason, state officials need to consider the natural tendencies of their economies when formulating tax policy. For example, states with volatile economies might want tax portfolios that minimize the impact of national macroeconomic trends; those with stable economies might consider adopting more aggressive tax portfolios that optimize their tax revenue growth/volatility combinations.
AUTHORS: Nelson, Ray D.; Cornia, Gary C.
AUTHORS: Garrett, Thomas A.
Local price variation and labor supply behavior
In standard economic theory, labor supply decisions depend on the complete set of prices: wages and the prices of relevant consumption goods. Nonetheless, most theoretical and empirical work in labor supply studies ignores prices other than wages. We address the question of whether the common practice of ignoring local price variation in labor supply studies is as innocuous as generally assumed. We describe a simple model to demonstrate that the effects of wage and nonlabor income on labor supply typically differ by location. In particular, we show that the derivative of the labor supply with respect to nonlabor income is independent of price only when labor supply takes a form based on an implausible separability condition. Empirical evidence demonstrates that the effect of price on labor supply is not a simple "up-or-down shift" that would be required to meet the separability condition in our key proposition.
AUTHORS: Kolesnikova, Natalia A.; Black, Dan A.; Taylor, Lowell J.
Economic and environmental impacts of U.S. corn ethanol production and use
For many years, U.S. policy initiatives and incentives have favored the production of ethanol from corn. The goals have been to increase corn prices and farmer income, enhance rural employment through encouragement of value-added businesses, increase energy security, and produce additives and/or fuels capable of reducing tailpipe pollutants and greenhouse gases. The Energy Policy Act of 2005 established annual goals via a renewable fuels standard that would have increased production of ethanol and biodiesel to 7.5 billion gallons by 2012. That bill was superseded by the Energy Independence and Security of Act of 2007, which increased usage targets and specified performance standards for ethanol and other biofuels. The 2008 Farm Bill identified incentive payments for ethanol produced in various ways. The effects of these three laws have been magnified by rising crude oil prices, which helped maintain profits for corn dry-grind ethanol plants. This paper discusses environmental effects of corn ethanol production and use, energy balances of corn ethanol versus gasoline, subsidies for corn ethanol and gasoline, impacts of ethanol production on farmer decisionmaking, and effects of corn ethanol on food prices.
AUTHORS: Tiffany, Douglas G.
Cyclical patterns and structural changes in the Louisville area economy since 1990
AUTHORS: Coomes, Paul; Chou, Nan-Ting
Regional aggregation in forecasting: an application to the Federal Reserve's Eighth District
Hernndez-Murillo and Owyang (2006) showed that accounting for spatial correlations in regional data can improve forecasts of national employment. This paper considers whether the predictive advantage of disaggregate models remains when forecasting subnational data. The authors conduct horse races among several forecasting models in which the objective is to forecast regional- or state-level employment. For some models, the objective is to forecast using the sum of further disaggregated employment (i.e., forecasts of metropolitan statistical area (MSA)-level data are summed to yield state-level forecasts). The authors find that the spatial relationships between states have sufficient predictive content to overcome small increases in the number of estimated parameters when forecasting regional-level data; this is not always true when forecasting state- and regional-level data using the sum of MSA-level forecasts.
AUTHORS: Owyang, Michael T.; Engemann, Kristie M.; Hernandez-Murillo, Ruben
The U.S. ethanol industry
Ethanol is vital to achieving greater American energy independence. It is today's only viable and available fuel that can be substituted for gasoline. Unlike oil, ethanol is renewable-it will never run out. As science moves from making ethanol from corn to producing it from corn cobs and other plant materials, ethanol will continue to be a sustainable and effective energy solution for the world. America's dependence on foreign oil causes enormous problems for Americans every day-raising the prices on everything from gas to groceries and sending money and jobs overseas. This article summarizes the state of the ethanol industry.
AUTHORS: Stowers, Mark D.
Forecasting real housing price growth in the Eighth District states
The authors consider forecasting real housing price growth for the individual states of the Federal Reserve's Eighth District. They first analyze the forecasting ability of a large number of potential predictors of state real housing price growth using an autoregressive distributed lag (ARDL) model framework. A number of variables, including the state housing price-to-income ratio, state unemployment rate, and national inflation rate, appear to provide information that is useful for forecasting real housing price growth in many Eighth District states. Given that it is typically difficult to determine a priori the particular variable or small set of variables that are the most relevant for forecasting real housing price growth for a given state and time period, the authors also consider various methods for combining the individual ARDL model forecasts. They find that combination forecasts are quite helpful in generating accurate forecasts of real housing price growth in the individual Eighth District states.
AUTHORS: Strauss, Jack K.; Rapach, David E.