Bank credit and economic activity
AUTHORS: Wilcox, James A.; Walsh, Carl E.
Is the market for college graduates headed for a bust? Demand and supply responses to rising college wage premiums
AUTHORS: Bishop, John H.
Happy hour economics, or how an increase in demand can produce a decrease in price
The standard supply-and-demand model is typically an economist?s most important analytical tool, but in some situations it does not capture the features of interest. For example, during ?happy hour,? bars near workplaces sell a higher-than-usual quantity of alcoholic beverages at a lower-than-usual price. This practice makes little sense using the standard competitive model, but an alternative model?the model of monopolistic competition?provides the needed analytic framework. ; This article provides a step-by-step construction of a monopolistic competition model in which many firms each produce the same product, and thus bear the same production costs, as their competitors. Yet each firm?s product is differentiated from its competitors?, resulting in a falling demand curve. ; These seemingly contradictory conditions can be rationalized by assuming the firms are separated in space and that consumers bear costs to travel to the firms. A local firm has some monopoly power because local consumers may be willing to pay a higher price for the convenience of shopping nearby. Conversely, local consumers may be willing to travel farther for a lower price. Firms charging a lower price may also be able to attract faraway consumers who are willing to travel. ; Thus, when consumers? demand increases, the demand curve facing a local monopolist becomes more sensitive to changes in its own price. This increase in sensitivity in turn can cause the equilibrium price to be lower during periods of high demand.
AUTHORS: Fisher, Mark
Relating commodity prices to underlying inflation: the role of expectations
Temporary supply factors may boost some commodity prices?a drought in the Midwest can jolt food costs, or a conflict in the Middle East might propel oil higher. These, in turn, can increase the overall consumer price index (CPI) and the headline inflation rate. ; Because central bank anti-inflation measures sometimes take a long time to affect prices, policymakers don?t necessarily react to short-term fluctuations in headline inflation (an overall rate that?s not seasonally adjusted). In fact, the mandate of many inflation-targeting central banks is to aim to keep headline inflation at a certain target or within a certain range ?over the medium term,? widely recognized as a few years. Thus, even a strict inflation-targeting central bank doesn?t aim to contain short-run headline inflation fluctuations.
AUTHORS: Davis, J. Scott
Market expectations and corn prices: looking into future to explain present
Market expectations of future supply and demand are important in determining current prices for agricultural products such as corn, which are harvested annually and stored for later use. Prices can quickly move when beliefs change?due to new data, for example?even if events far in the future are involved.
AUTHORS: Thies, Jackson; Plante, Michael D.
Did speculation drive oil prices? futures market points to fundamentals
Oil market speculation became an especially popular topic when the price of crude tripled over 18 months to a record high $145 per barrel in July 2008. Of particular interest to many is whether speculators drove oil prices beyond what fundamentals would have otherwise justified. We explore this issue over two Economic Letters. In this article, we look for evidence in the futures market that would signal speculation primarily drove prices. In our companion Economic Letter, we examine the physical market.
AUTHORS: Plante, Michael D.; Mine K. Yücel
Did speculation drive oil prices? market fundamentals suggest otherwise
Oil market speculation became an especially popular topic when the price of crude tripled over 18 months to a record high $145 per barrel in July 2008. Of particular interest to many is whether speculators drove oil prices beyond what fundamentals would have otherwise justified. We explore this issue over two Economic Letters. In this article, we look at evidence from the physical market for oil and conclude that fundamentals, and not speculation, were behind the dramatic rise and fall in oil prices. In our companion Economic Letter, we examine the futures market.
AUTHORS: Plante, Michael D.; Mine K. Yücel
Supply shocks and the distribution of price changes
Since the early 1970s, economists have gained an increased appreciation for the importance of supply shocks as sources of fluctuations in aggregate economic activity. Yet the question of how best to measure such shocks remains open. Traditionally, economists have assessed the importance of such shocks by looking at such things as the relative prices of oil or agricultural commodities. Recently, however, it has been suggested that changes in the distribution of price changes for individual commodities may, in fact, be a superior indicator of changes in aggregate supply conditions. In this article, Nathan Balke and Mark Wynne assess this argument in the context of a very simple but well-known model of the aggregate economy. They show that fluctuations in the rate of technological progress across sectors are indeed reflected in the cross-section distribution of prices, lending support to the idea that this may be a superior measure of supply shocks. However, Balke and Wynne raise questions about the interpretation of the relationship between changes in the distribution of price changes for individual commodities and aggregate inflation as evidence of price stickiness.
AUTHORS: Wynne, Mark A.; Balke, Nathan S.
A structural model of real aggregate demand
AUTHORS: Throop, Adrian W.
Minding the speed limit
AUTHORS: Walsh, Carl E.