Economic Letter

The current plan for a common currency in the European Monetary Union (EMU) includes a set of rules governing member countries’ government finances, known as the Growth and Stability Pact. This Pact, which was ratified in the June 1997 Amsterdam Summit, commits EMU members to government budget positions which are close to balance and specifies explicit sanctions for persistent excessive government deficits.

U.S. commercial banks have posted record profits during the past few years, with return on equity for all banks hovering around 15% and return on assets well above 1% since 1993. As a result, bank holding company stocks have been doing even better than the rest of the market, which itself has recorded sizable gains during this period.

In recent years, the increasingly prosperous East Asian economies of Japan, Hong Kong, Singapore, Korea, and Taiwan have been hailed as models of achievement for other emerging economies. While a number of explanations may be offered for East Asia’s economic success, many observers are convinced that an outward-looking development strategy, particularly a dynamic export sector, has been a crucial ingredient.

Since 1978, the share of households’ financial assets held in depository institutions has declined steadily from about 39% to about 17%. Previous research suggests that an important contributing factor may be the shifting age structure of the population.

In the postwar period, the ultimate objectives of the Federal Reserve–namely full employment and stable prices–have remained unchanged; however, the Fed has modified its operational and intermediate objectives for monetary policy several times in response to changes in the economic environment. For example, in 1970, the Federal Reserve formally adopted monetary targets in an attempt to use an intermediate nominal objective or anchor to resist slowly rising inflation.

Now and then, economists actually manage to come up with colorful phrases to describe economic phenomena. This Economic Letter focuses on the phenomenon known as “the flying geese formation.”

During the past 30 years, the economies of several East Asian nations grew on average by about 8% per year. Such rapid growth over such a long period of time is historically unprecedented.

In early January, the Advisory Council on Social Security published a review of the system and reported that it is in jeopardy. Although the system is currently accumulating a surplus, actuaries at the Social Security Administration forecast that the present value of future obligations far exceeds the present value of future revenues.