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The Great Recession, Entrepreneurship, and Productivity Performance

February 18, 2015 Comments off

The Great Recession, Entrepreneurship, and Productivity Performance
Source: Federal Reserve Bank of Boston

I study the recent evolution of entrepreneurship in the United States . I find that there was a significant decline in entrepreneurship around the time of the Great Recession. However, I also find a recovery in recent years. I then link the evolution of entrepreneurship to productivity performance and find evidence of a positive association between the two variables.

The Forecasting Power of Consumer Attitudes for Consumer Spending

January 24, 2015 Comments off

The Forecasting Power of Consumer Attitudes for Consumer Spending
Source: Federal Reserve Bank of Boston

The widely studied Reuters/Michigan Index of Consumer Sentiment is constructed from the answers to five questions from the more comprehensive Reuters/Michigan Surveys of Consumers. Yet little work has been done on what predictive power the information taken from this more thorough compilation of consumer attitudes and expectations may have for forecasting consumption expenditures. The authors construct a limited set of real-time summary measures for 42 questions selected from these broader Surveys corresponding to three broad economic determinants of consumption—income and wealth, prices, and interest rates, and then use regression analysis to evaluate and test the ability of these summary measures to predict future changes in real consumer expenditures, even when controlling for current and future fundamentals. They explain a nontrivial portion of consumption and other real activity forecast errors from professional forecasts. This is consistent with these measures’ ability to predict consumption even when conditioning on a broader set of fundamentals as well as professional forecasters’ judgmental forecast adjustments.

Smoothing State Tax Revenues over the Business Cycle: Gauging Fiscal Needs and Opportunities

January 22, 2015 Comments off

Smoothing State Tax Revenues over the Business Cycle: Gauging Fiscal Needs and Opportunities
Source: Federal Reserve Bank of Boston

During the two most recent U.S. recessions in 2001 and in 2007–2009, state governments experienced an unusually high degree of fiscal stress due to increased revenue cyclicality. Expanding upon the aggregate evidence, this paper explores the degree to which individual states have experienced fluctuating tax receipts over the business cycle. The findings provide state policymakers with information to better understand the extent and causes of this tax revenue cyclicality and, in the context of balanced budget requirements, the efficacy of alternative measures that might be employed to smooth the sensitivity of state resources to economic conditions.

U.S. Consumers’ Holdings and Use of $100 Bills

January 21, 2015 Comments off

U.S. Consumers’ Holdings and Use of $100 Bills
Source: Federal Reserve Bank of Boston

Key Findings

  • More than one in five U.S. consumers carries more than $100 in cash in his or her pocket, purse, or wallet, and the more cash the consumer carries the more likely he or she is to carry $100 bills. Consumers may have $100 bills stored on their property as well, but data are not available on this aspect of consumer cash use.
  • People who carry $100 bills tend to hold them for a while. On any given day, between 75 percent and 80 percent of respondents to the 2012 DCPC who carried a $100 bill held on to it. There does not appear to be evidence that consumers try to get rid of $100 bills.
  • By number of transactions, consumers with $100 bills do not make relatively more payments in cash than consumers with more than $100 in mixed bills, as reported in the 2012 DCPC. Thus, $100 bills do not appear to be more special than other currency denominations as a means of payment; rather, some consumers appear to have a stronger preference than other consumers for $100 bills.
  • By value of cash payment, people who carry $100 bills make larger-value cash payments than people who carry more than $100 in mixed bills.
  • Thus, $100 bills appear to help some consumers who prefer to pay in cash make larger cash payments more conveniently.
  • Nevertheless, most cash payments are for less than $100, so people are receiving change from their $100 bills. And, for payments of $100 or more, 15.8 percent of purchases were paid in cash, while just 3 percent of bills were paid in cash. So, based on these data, it appears that most consumer payments greater than $100 in value are made using noncash means of payment. Thus, the need for a denomination as large as a $100 bill appears to be modest in the big picture of consumer payments.

Labor Market Transitions and the Availability of Unemployment Insurance

January 12, 2015 Comments off

Labor Market Transitions and the Availability of Unemployment Insurance
Source: Federal Reserve Bank of Boston

Economists often expect unemployment insurance (UI) benefits to elevate unemployment rates because recipients may choose to remain unemployed in order to continue receiving benefits, instead of accepting a job or dropping out of the labor force. This paper uses individual data from the Current Population Survey for the period between 2005 and 2013—a period during which the federal government extended and then reduced the length of benefit availability to varying degrees in different states—to investigate the influence of program parameters in the UI system on monthly transition rates of unemployed individuals. The main finding is that unemployed job losers tend to remain unemployed until they exhaust UI benefits, at which point they become more likely to drop out of the labor force; transitions to a job appear to be unaffected by UI benefit extensions. These findings imply that the longer periods of benefit eligibility under the federal programs EUC08 and EB—up to 99 weeks in many states in 2011 and 2012—contributed to the elevated jobless rates observed during that period, but not via lower employment. By the same token, the sharp contraction of benefit weeks that occurred in 2012 and continued more gradually in 2013 likely contributed to declines in unemployment and participation rates beyond what one would expect based on the improving economy alone. Similarly, the December 28, 2013 sudden cutoff of federal UI payments to an estimated 1.3 million jobless Americans who had been looking for work for more than six months is adding to the pace of transitions from unemployment to dropping out of the labor force, thus reducing the unemployment rate and the labor force participation rate further in the first half of 2014, although very modestly.

The Ins and Arounds in the U.S. Housing Market

January 8, 2015 Comments off

The Ins and Arounds in the U.S. Housing Market
Source: Federal Reserve Bank of Boston

In the United States, 15 percent of households change residence in a given year. This result is based on data from the Panel Study of Income Dynamics on gross flows within and between the two segments of the housing market—renter-occupied properties and owner-occupied properties. The gross flows between these two segments are four times larger than the net flows. From a secular perspective, housing turnover exhibits a hump-shaped pattern between 1970 and 2000, which this paper attributes to changes in the age composition of the U.S. population. At higher frequencies, housing turnover is procyclical and tends to lead the business cycle and real house prices. By taking a two-segment view of the U.S. housing market and by carefully documenting the empirics of turnover within and between these segments, the paper provides important moments for and gives empirical guidance to the design, calibration, and evaluation of micro-founded, dynamic, and quantitative models of the U.S. housing market.

Merchant Steering of Consumer Payment Choice: Evidence from a 2012 Diary Survey

January 7, 2015 Comments off

Merchant Steering of Consumer Payment Choice: Evidence from a 2012 Diary Survey
Source: Federal Reserve Bank of Boston

This paper seeks to discover whether U.S. merchants are using their recently granted freedom to offer price discounts and other incentives to steer customers to pay with methods that are less costly to merchants. Using evidence of merchant steering based on the 2012 Diary of Consumer Payment Choice, we find that only a very small fraction of transactions received a cash or debit card discount, and even fewer were subjected to a credit card surcharge. Transactions at gasoline stations were more likely to receive either cash discounts or credit card surcharges than transactions in other sectors. Larger-value transactions were somewhat more likely to receive a discount, although the effect is small when controlling for merchant sector. There is little evidence that merchants have started taking advantage of their new flexibility to influence consumers’ payment choice by either discounting or surcharging based on the payment method.

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