Federal Reserve Corner
This page serves two purposes. First, we want to set up a convenient set of links to the wealth of information and data available from Federal Reserve web sites. Second, we highlight interesting articles from Federal Reserve research publications with a brief review and a link to the whole article, where available.
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- Literature Search online search of articles in FRB publications.
- Center for Pacific Basin Studies - holds conferences and circulates working papers on Pacific Basin economic issues.
Federal Reserve Bank of St. Louis
Federal Reserve Reading Room
Listed February 21, 2007
Chairman Ben Bernanke, Semiannual Monetary Policy Report to the Congress
February 14, 2007
Vice Chairman Donald L. Kohn, Financial Stability: Preventing and Managing Crises
February 21, 2007. Speech to the Exchequer Club Luncheon, Washington, D.C.
Governor Frederic S. Mishkin, The Role of House Prices in Formulating Monetary Policy
January 17, 2007. Speech at the Forecasters Club of New York,
Governor Susan Schmidt Bies, Enterprise Risk Management and Mortgage Lending
January 11, 2007, Speech At the National Credit Union Administration 2007 Risk Mitigation Summit
Cabray L. Haines and Richard J. Rosen. Bubble, bubble, toil, and trouble. FRB of Chicago Economic Perspectives, First Quarter 2007.
The rapid rise of real estate prices in recent years has led to fears of a housing price bubble. But, to determine whether there has been a bubble–and whether the bubble is bursting–one needs to know what home prices “should” be. The authors estimate a simple model of home prices and find that prices were, on average, above their predicted levels during 2000–06. However, this result does not hold true uniformly across the country. To the extent that prices were overheating, this was happening largely in markets that have traditionally exhibited volatile prices. (PDF,514KB)
George A. Kahn. Communicating a Policy Path: The Next Frontier in Central Bank Transparency, FRB of Kansas City Economic Review, First Quarter 2007.
n the last two decades, central banks have taken a variety of steps to increase the transparency of monetary policy. Today, many economists are suggesting ways to further increase transparency. One area of considerable interest is the outlook for the future path of the policy rate. The policy rate is the short-term, typically overnight, interest rate that central bankers use to adjust the stance of monetary policy. While central banks typically announce changes in the policy rate when they occur, very few central banks provide an explicit description of where the policy rate is likely to be set in the future. Yet, this information is clearly of value to financial markets. Financial market participants want to know the policy path so they can properly price long-term assets, such as government notes and bonds, which depend in part on future short rates. In addition, speculation about the outlook for the policy rate is a staple of the financial press, and futures markets have developed to allow investors to hedge risk or speculate about future policy moves. More information about the policy path might make these markets more efficient and reduce asset price volatility. Kahn surveys current central bank practices relating to transparency and the future path of the policy rate. He identifies some of the conceptual and practical issues that may limit central banks’ ability and willingness to provide more information about the policy path to financial markets.
Listed January 16, 2007
Vice Chairman Donald Kohn, The Economic Outlook
January 8, 2007. Speech to the Atlanta Rotary Club, Atlanta, Georgia
David C. Wheelock. What Happens to Banks When House Prices Fall? U.S. Regional Housing Busts of the 1980s and 1990s. Federal Reserve Bank of St. Louis Review, September/October 2006, 88(5), pp. 413-29.
The recent rapid appreciation of house prices in many U.S. markets has prompted concern over the possible effects of a sharp decline in prices, especially for commercial banks and other real estate lenders. This article examines regional real estate booms and busts in the 1980s and 1990s: Only about half of state house price booms were followed by a severe decline in prices, but large declines occurred in several states that did not have a prior boom. Banks in states that had large house price declines experienced high loan default rates and, thus, low profit and high failure rates. Although U.S. banks may have become more exposed to residential real estate recently, they appear less vulnerable to a decline in house prices than banks in states with large price declines in the earlier period.
Matthew Higgins, Thomas Klitgaard, and Robert Lerman. Recycling Petrodollars. Federal Reserve Bank of New York, Current Issues in Economics and Finance, December 2006 Volume 12, Number 9
In recent years, oil-exporting countries have experienced windfall gains with the rise in the price of oil. A look at how oil exporters “recycle” their revenues reveals that roughly half of the petrodollar windfall has gone to purchase foreign goods, especially from Europe and China, while the remainder has been invested in foreign assets. Although it is difficult to determine where the funds are first invested, the evidence suggests that the bulk are ending up, directly or indirectly, in the United States.
William A. Strauss and Emily A. Engel, Economic Outlook Symposium: Summary of 2006 results and forecasts for 2007. Chicago Fed Letter, February 2007 Number 235.
In 2007, the nation’s economic growth will soften slightly, inflation will decrease, and the unemployment rate will edge higher, according to the median forecast of the participants at the Federal Reserve Bank of Chicago’s Economic Outlook Symposium.
Listed November 29, 2006
Chairman Ben Bernanke, The Economic Outlook
November 28, 2006. Speech to the National Italian American Foundation, New York, New York.
Governor Randall Kroszner, The Conquest of Worldwide Inflation: Currency Competition and Its Implications for Interest Rates and the Yield Curve.
November 16, 2006. Speech to the Cato Institute Monetary Policy Conference, Washington, D.C.
Chairman Ben S. Bernank, Monetary Aggregates and Monetary Policy at the Federal Reserve: A Historical Perspective.
November 10, 2006 Speech at the At the Fourth ECB Central Banking Conference, Frankfurt, Germany.
Yolanda K. Kodrzycki and Nelson Gerew, Using State and Metropolitan Area House Price Cycles to Interpret the U.S. Housing Market, Federal Reserve Bank of Boston Policy Brief, No 06-1.
This brief examines the numerous house price cycles in states and metropolitan areas since the 1970s, drawing lessons that may be informative for analyzing and projecting national patterns. It finds that house sales volumes, new home construction, and mortgage delinquencies have provided leading indicators when a statewide house price boom was nearing an end, but that house prices have rarely decreased in the absence of a state recession. The median relationship suggests that the national OFHEO house price index could keep increasing well into 2007, given the sales and construction declines and the increases in delinquencies observed to date, and absent other factors that weaken the economy. However, the lead-lag relationships have varied considerably across states and time periods, indicating that turning points in house prices are difficult to predict precisely.
Next, the brief examines the empirical relationship between metropolitan-area house prices and measures of their deviation from justifiable values, as derived from economic models. It finds that the probability of a house price decline in metropolitan areas has depended on both the extent to which housing was overvalued two to three years earlier and on changes in market fundamentals that affect housing. An extrapolation of these results suggests that national house price increases are likely to be approximately flat for the remainder of 2006. Estimates for 2007 vary, depending on assumptions regarding mortgage interest rates, personal incomes, and apartment rents, and on one’s views on how such factors influence housing markets. In addition, the brief also cautions that the economic models developed to date provide only partial explanations of past house price movements.
On the whole, the results can be interpreted as adding support for the view that average U.S. house prices are likely to be fairly flat in 2006 and 2007. Because house prices are subject to inexplicable movements, this conclusion should be viewed as a plausible extrapolation using historical evidence rather than a forecast. An additional caveat is that mortgage markets and other institutional factors may have changed sufficiently so as to alter the relationship between house prices and the economy compared with what existed in past cycles.
Mark Doms and Meryl Motika, The Rise in Homeownership, Federal Reserve Bank of San Francisco Economic Letter, November 3, 2006.
After decades of relative stability, the rate of U.S. homeownership began to surge in the mid-1990s, rising from 64% in 1994 to a peak of 69% in 2004, near which it has hovered ever since; this translates into 12 million more homeowners over the period. Understanding the forces behind such trends in homeownership is important not only because supporting homeownership has been an unequivocal public policy goal for decades but also because homes are an important part of people's net worth and, therefore, can affect their spending, working, and saving decisions.
This Economic Letter examines several potential reasons for this surge in the homeownership rate. It find that, while demographic changes have some role to play, it is likely that much of the increase is due to innovations in the mortgage finance industry that may have helped a large number of households buy homes more easily than they could have a decade ago.
Eric O'N. Fisher and Kathryn G. Marshall, The Anatomy of an Oil Price Shock , Federal Reserve Bank of Cleveland Economic Commentary, November 2006.
Oil price shocks do not cause inflation, no matter how close the connection seems to be in our practical experience. But they can cause significant price increases throughout the economy. Tracing the way a sharp increase in the price of crude oil affects prices in various industrial sectors of the U.S. economy suggests how big these increases are. Fortunately, our economy seems better prepared now to weather such shocks than in the 1970s and 1980s.
Listed October 18, 2006
Chairman Ben Bernanke, The Coming Demographic Transition: Will We Treat Future Generations Fairly?
October 4, 2006. Speech to the Washington Economic Club
Governor Randall Kroszner, What Drives Productivity Growth? Implications for the Economy and Prospects for the Future
September 27, 2006. Speech to The Forecasters Club, New York City.
President William Poole, FRB of St. Louis, Data, Data, and More Data
October 16, 2006, Speech to the Association for University Business and Economic Research (AUBER) Annual Meeting
FRB of New York Current Issues in Economics and Finance, September 2006. Rebecca Hellerstein, Deirdre Daly, and Christina Marsh, Have U.S. Import Prices Become Less Responsive to Changes in the Dollar?
The failure of the dollar’s depreciation to narrow the U.S. trade deficit has driven recent research showing that the transmission of exchange rate changes to import prices has declined sharply in industrial countries. Estimates presented in this study, however, suggest that “pass-through” to U.S. import prices has fallen only modestly, if at all, in the last decade. The authors argue that methodological changes in the collection of import data and the inclusion of commodity prices in pass-through models may have contributed to earlier findings of low pass-through rates.
FRB of San Francisco Economic Letter October 2006, John C. Williams, Inflation Persistence in an Era of Well-Anchored Inflation Expectations.
Economic theory suggests that the observed behavior of inflation may be different in a regime of stable inflation and inflation expectations compared to regimes in which inflation is allowed to drift for a considerable period of time and expectations are poorly anchored. Such a change in the behavior of inflation, if it has occurred, potentially has important implications both for forecasting inflation and for the appropriate monetary policy response to a change in the inflation rate. This Economic Letter examines whether the recent stability of inflation and inflation expectations represents a fundamental shift in the observed behavior of inflation and explores some possible reasons why inflation dynamics may have changed.
Listed September 20, 2006
Chairman Ben Bernanke, Global Economic Integration: What's New and What's Not?
August 25, 2006.
Remarks at the Federal Reserve Bank of Kansas City's Thirtieth Annual Economic Symposium, Jackson Hole, Wyoming
FRB of Kansas City. The New Economic Geography: Effects and Policy Implications.
The Jackson Hole Symposium, August 25, 2006.
Chicago Fed Letter, October 2006 . Cabray L. Haines, Developments and innovations in real estate markets: A conference summary.
During the last few years, activity in the U.S. housing market has been brisk, and mortgage credit has reached an ever wider circle of borrowers. A recent conference at the Chicago Fed assembled researchers, regulators, and practitioners to discuss the implications of these developments, both for the housing finance system and for the economy as a whole.
Richmond Fed Economic Quarterly, Summer 2006. Margarida Duarte and Diego Restuccia, The Productivity of Nations.
In this article, we document observations on labor productivity across countries over time. Using data from Heston, Summers, and Aten (2002) on gross domestic product (GDP) per worker—our measure of labor productivity—we emphasize three main facts about the distribution of labor productivity across countries between 1960 and 1996.1 First, there is substantial dispersion in labor productivity across countries...Second, disparity in labor productivity has increased over time...Third, there is substantial mobility of individual countries in the distribution of labor productivity over time.
President Timothy Geithner, FRB New York, September 14, 2006. Hedge Funds and Derivatives and Their Implications for the Financial System.
Remarks at the Distinguished Lecture 2006, sponsored by the Hong Kong Monetary Authority and Hong Kong Association of Banks, Hong Kong.
FRB of New York Current Issues in Economics and Finance, Jul/Aug 2006. Arturo Estrella and Mary R. Trubin, The Yield Curve as a Leading Indicator: Some Practical Issues.
Since the 1980s, economists have argued that the slope of the yield curve—the spread between long- and short-term interest rates—is a good predictor of future economic activity. While much of the existing research has documented how consistently movements in the curve have signaled past recessions, considerably less attention has been paid to the use of the yield curve as a forecasting tool in real time. This analysis seeks to fill that gap by offering practical guidelines on how best to construct the yield curve indicator and to interpret the measure in real time.
September 6, 2006