Economic Letter

Since the introduction of the IBM PC in 1981, desktop computers have become a standard fixture in most workplaces. Through their ubiquity and impact on how work is done, personal computers (PCs) arguably have transformed the workplace.

Ask any economist and he or she will tell you that faster productivity growth leads to higher real wages and improved living standards. So, from those perspectives, the recent evidence of strong productivity growth in the U.S. is good news.

Central banks use macroeconomic models to help frame the issues that they face, to mold their ideas, and to guide them in their decisionmaking. While a wide range of models are available, economists are increasingly examining monetary policy issues and the design of optimal monetary policies in the context of “New Keynesian” macroeconomic models.

When Congress enacted the Community Reinvestment Act (CRA) in 1977, its main goal was to address concerns that some banking institutions were not fully meeting the credit needs of qualified potential borrowers, particularly those in low- and moderate-income (LMI) and minority neighborhoods of inner cities. Since then, debate has continued over the need for, and the effectiveness of, the CRA.

Central banks and other policy institutions have a long history of using macroeconomic models to help prepare forecasts and to quantify the economic consequences of various policies. Likewise, private sector firms have long depended on models to summarize these complex interactions succinctly and to evaluate the likelihood of specific macroeconomic outcomes; this is especially true for financial institutions, where such models can help with capital investment and asset allocation decisions.

This Economic Letter summarizes the papers presented at a conference on “Interest Rates and Monetary Policy” held at the Federal Reserve Bank of San Francisco on March 19 and 20, 2004, under the joint sponsorship of the Federal Reserve Bank of San Francisco and the Stanford Institute for Economic Policy Research.

As a monetary policymaker, my main concern is the health of the U.S. economy. Although the economy turned in a pretty sluggish performance for a long while after the 2001 recession, it has shown some real strength over the last few quarters in terms of output growth and productivity.

Since the second half of the 1990s, the growth rate of labor productivity has been faster than at any time since the 1960s, especially in the manufacturing sector. This turnaround in labor productivity had led many to wonder whether there is something “new” going on in the U.S. economy, and, if so, whether it is sustainable.