Federal Reserve Bank
of San Francisco Federal Reserve Bank
of San Francisco

Economic Letter

Brief summaries of SF Fed economic research that explain in reader-friendly terms what our work means for the people we serve.

  • Assessing Expectations of Monetary Policy

    2014-27

    Jens H.E. Christensen and Simon Kwan

    An ongoing concern has been that the public might misconstrue the Fed’s forward guidance about future monetary policy and underappreciate the extent to which short-term interest rates may vary with future news about the economy. Evidence based on surveys, market expectations, and model estimates show that the public seems to expect a more accommodative policy than Federal Open Market Committee participants. The public also may be less uncertain about these forecasts than policymakers.

  • Prospects for Asia and the Global Economy:
 Conference Summary

    2014-26

    Reuven Glick and Mark M. Spiegel

    A new volume, Prospects for Asia and the Global Economy, summarizes the 2013 Asia Economic Policy Conference hosted by the Federal Reserve Bank of San Francisco’s Center for Pacific Basin Studies. The conference focused on challenges faced by policymakers in advanced and emerging economies as they continue to recover from the recent global financial crisis. Issues discussed included the monetary policy spillovers from advanced economies to emerging markets, the costs and benefits of foreign reserve accumulation, and the desirability of macroprudential interventions, restrictions on cross-border capital flows, and financial regulatory reforms to reduce the likelihood of future crises.

  • Fueling Road Spending with Federal Stimulus

    2014-25

    Sylvain Leduc and Dan Wilson

    Highway spending in the United States between 2008 and 2011 was flat, despite the serious need for improvements and the big boost to state highway funds from the Recovery Act of 2009. A comparison of how much different states received and spent shows that these federal grants actually boosted highway spending substantially. However, this was offset by pressures to reduce state highway spending due to plummeting tax revenues. In fact, analysis suggests national highway spending would have fallen roughly 20% over this period without federal highway grants from the Recovery Act.

  • Home Currency Issuance in Global Debt Markets

    2014-24

    Galina B. Hale, Peter Jones, and Mark M. Spiegel

    Historically, businesses in most countries have not been able to sell bonds denominated in their home currencies to foreign investors. In recent decades this trend has been changing. Research shows that bonds denominated in currencies other than the major global currencies have increased, particularly following the global financial crisis. However, not all countries were affected equally. Countries that were able to take advantage of the temporary disruption and near-zero interest rates in global financial markets were the ones with a combination of low government debt and a history of stable inflation.

  • Long Road to Normal for Bank Business Lending

    2014-23

    Simon Kwan

    Following the 2007–09 financial crisis, bank lending to businesses plummeted. Five years later, the dollar amount of bank commercial and industrial lending has finally surpassed the previous peak. However, despite very accommodative monetary policy and abundant excess reserves in the banking system, the spread of the commercial loan interest rates over the target federal funds rate remains above its long-run average. This suggests that business loans are not yet cheap relative to banks’ funding cost.

  • The Wage Growth Gap for Recent College Grads

    2014-22

    Bart Hobijn and Leila Bengali

    Median starting wages of recent college graduates have not kept pace with median earnings for all workers over the past six years. This type of gap in wage growth also appeared after the 2001 recession and closed only late in the subsequent labor market recovery. However the wage gap in the current recovery is substantially larger and has lasted longer than in the past. The larger gap represents slow growth in starting salaries for graduates, rather than a shift in types of jobs, and reflects continued weakness in the demand for labor overall.

  • Bank Counterparties and Collateral Usage

    2014-21

    Hamed Faquiryan and Marius Rodriguez

    The 2007–09 financial crisis drew attention to the nature and consequences of connections among financial firms. New reporting standards set in the wake of the crisis have shed more light on these ties in current financial markets. New data are available on the magnitude of risk exposure and the types of collateral that link bank holding companies with their trading partners in over-the-counter derivatives markets. The data show that both the level of risk and diversity of collateral involved in these contracts vary widely depending on the type of counterparties.

  • Slow Business Start-ups and the Job Recovery

    2014-20

    Liz Laderman and Sylvain Leduc

    Start-ups typically create jobs so fast at the beginning of recoveries that even a modest drop in that pace can affect the whole economy. In fact, slower job growth among new businesses may have resulted in 760,000 fewer jobs in the first year of the current recovery. Because housing wealth is an important factor in the financing of new businesses, lower house prices may have been partly to blame for the slower growth. Conversely, recently increasing house prices may already be boosting start-up growth and, with it, overall job growth.

  • Will Inflation Remain Low?

    2014-19

    Yifan Cao and Adam Shapiro

    The well-known Phillips curve suggests that future inflation depends on current and past inflation and a measure of economic slack or resource utilization. Using the unemployment gap to measure slack, a simple Phillips curve currently predicts that inflation will remain quite low through 2015. Two variations of the model, which impose a higher anchor for inflation expectations or focus only on a short-term unemployment gap, still predict that inflation will remain low, albeit higher than implied by the basic model.

  • Household Expectations and Monetary Policy

    2014-18

    Carlos Carvalho and Fernanda Nechio

    Helping the public understand how monetary policy is conducted is an important goal for the Federal Reserve. One way to measure people’s understanding is through surveys that show household expectations for the economy. Responses from the Michigan survey show some groups of households appear to hold beliefs consistent with basic features of U.S. policy. In particular, households with higher incomes and more education appear to better grasp how interest rates relate to inflation and unemployment, particularly during times of labor market weakness.