Economic Letter
Brief summaries of SF Fed economic research that explain in reader-friendly terms what our work means for the people we serve.
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Consumer Sentiment and the Media
Mark Doms
Policymakers and forecasters pay close attention to a lot of indicators that help them understand the economy’s current condition and the conditions that are likely to prevail in the future. One of the key indicators is not a so-called “hard” statistic, like “Real Gross Private Domestic Investment.”
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Gauging the Market’s Expectations about Monetary Policy
Simon Kwan
In recent months, some Federal Reserve officials have discussed the organization’s efforts at communicating to make the foundations of their decisionmaking more transparent to the public. Janet Yellen, president of the Federal Reserve Bank of San Francisco, said, “The reason for the focus on communication is that economic developments are affected by longer-term interest rates, equity values, the exchange rate, and other asset values—and these factors depend not only on the current [federal] funds rate, but, more importantly, on the expected future path of the funds rate” (Yellen 2004).
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House Prices and Fundamental Value
John Krainer and Chishen Wei
The performance of the residential housing market over the last ten years has been remarkable. According to the Office of Federal Housing Enterprise Oversight (OFHEO), house prices have appreciated at an annual rate of 5.4% on average (68.9% over the whole time period).
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Supervising Interest Rate Risk Management
Jose A. Lopez
Over the past 20 years, financial institutions have made significant efforts to establish and improve their procedures for interest rate risk management, including using economic models of interest rates and related models of credit risk (Lopez 2001a, b). At the same time, bank supervisors worldwide, including the Federal Reserve, have been expanding their knowledge and oversight of interest rate risk management techniques.
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Exchange Rate Movements and the U.S. International Balance Sheet
Michele Cavallo
The U.S. current account deficit has been growing for several years, as the country has been importing increasingly more than it has been exporting. In 1992, the current account deficit was 0.8% of GDP, and by the end of 2003, it had soared to an unprecedented 4.8% of GDP.
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City or Country: Where Do Businesses Use the Internet?
Chris Forman, Avi Goldfarb, and Shane Greenstein
In just about ten years or so, the commercial use of the internet has metamorphosed from a researcher’s tool to an everyday business necessity. Indeed, a large fraction of the boom in business investment in information technology (IT) was related to business applications and infrastructure using internet-related technology.
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Two Measures of Employment: How Different Are They?
Tao Wu
Since the end of the 2001 recession, the U.S. economy has performed pretty well in terms of output growth, averaging about 3-1/4 percent a year. But how well has the economy performed in terms of creating jobs?
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Measuring the Costs of Exchange Rate Volatility
Paul Bergin
Many countries go to great lengths to manage their exchange rates. Probably the most prominent recent example is the European Monetary Union, where all the members abandoned their national currencies and adopted the euro.
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Does a Fall in the Dollar Mean Higher U.S. Consumer Prices?
Diego Valderrama
Beginning in early 2002, the dollar tumbled against major currencies like the euro, the British pound, and the Japanese yen; though it has risen somewhat in recent months, it is still well below that peak. One of the key questions this has raised for U.S. monetary policymakers is: How much of the decline in the dollar passed through to import prices and to overall consumer prices?
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Monetary and Financial Integration: Evidence from the EMU
Mark M. Spiegel
Most economists would argue that monetary integration leads to financial integration; in other words, when a set of countries has a common currency, as in the European Monetary Union (EMU), for example, those countries also would tend to have more extensive international financial activity. Two main reasons are generally cited. First, monetary integration reduces “currency risk,” which is the risk that the value of debt obligations would change due to fluctuations in currency values.