Archive for the ‘Federal Reserve Board’ Category

Taxing Wealth

July 15, 2015 Comments off

Taxing Wealth
Source: Federal Reserve Bank of Minneapolis

Some have proposed wealth taxation as a means of reducing economic inequality, but such proposals are premature. While economic theory and data measurement have solid grounding when analyzing other forms of taxation, such as income or sales taxes, this is not the case for wealth

Total estimates of the two most widely used measures of wealth, fixed assets and net worth, vary widely over the six decades for which data are available. Trend lines in these two wealth measures are rarely correlated. In addition, the relationship between the two—and explanation of why they differ so radically—remains a theoretical puzzle for economists. Given this state of affairs, accurate predictions for the impact, and design, of wealth taxation policies are not yet possible.

Small Businesses and Small Business Finance during the Financial Crisis and the Great Recession: New Evidence From the Survey of Consumer Finances

July 15, 2015 Comments off

Small Businesses and Small Business Finance during the Financial Crisis and the Great Recession: New Evidence From the Survey of Consumer Finances (PDF)
Source: Federal Reserve Board

We use the Federal Reserve’s 2007, 2009 re-interview of 2007 respondents, and 2010 Surveys of Consumer Finances (SCFs) to examine the experiences of small businesses owned and actively managed by households during these turbulent years. This is the first paper to use these SCFs to study small businesses even though the surveys contain extensive data on a broad cross-section of firms and their owners. We find that the vast majority of small businesses were severely affected by the financial crisis and the Great Recession, including facing tight credit constraints. We document numerous and often complex interdependencies between the finances of small businesses and their owner-manager households, including a more complicated role of housing assets than has been reported previously. We find that workers who lost their job responded in part by starting their own small business, and that factors correlated with the survival of a small business differed greatly depending upon whether the firm was established or new. Our results strongly reinforce the importance of relationship finance to small businesses, and the primary role of commercial banks in such relationships. We find that both cross-section and panel data are needed to understand the complex issues associated with the creation, survival and failure of small businesses.

The Income-Achievement Gap and Adult Outcome Inequality

July 14, 2015 Comments off

The Income-Achievement Gap and Adult Outcome Inequality (PDF)
Source: Federal Reserve Board

This paper discusses various methods for assessing group differences in academic achievement using only the ordinal content of achievement test scores. Researchers and policymakers frequently draw conclusions about achievement differences between various populations using methods that rely on the cardinal comparability of test scores. This paper shows that such methods can lead to erroneous conclusions in an important application: measuring changes over time in the achievement gap between youth from high- and low-income households. Commonly-employed, cardinal methods suggest that this “income-achievement gap” did not change between the National Longitudinal Surveys of Youth (NLSY) 1979 and 1997 surveys. In contrast, ordinal methods show that this gap narrowed substantially for reading achievement and may have narrowed for math achievement as well. In fact, any weighting scheme that places more value on higher test scores must conclude that the reading income-achievement gap decreased between these two surveys. The situation for math achievement is more complex, but low-income students in the middle and high deciles of the low-income math achievement distribution unambiguously gained relative to their high-income peers. Furthermore, an anchoring exercise suggests that the narrowing of the income-achievement gap corresponds to an economically significant convergence in lifetime labor wealth and school completion rates for youth from high- and low-income backgrounds.

See also: Achievement Gap Estimates and Deviations from Cardinal Comparability (PDF)

How Rich Will China Become?

July 13, 2015 Comments off

How Rich Will China Become?
Source: Federal Reserve Bank of Minneapolis

China’s impressive economic growth since the 1980s raises the question of how much richer it will become over future decades. Its growing share of the world economy affects other national economies. Understanding the future course of the Chinese economy is therefore important for both fiscal and monetary policymaking in the United States and elsewhere.

Using fundamental growth theory, data from China and from Korea and Japan’s similar “miracle” growth experiences, we provide a suggestive calculation for China’s future per capita income. Our ballpark estimate is that China’s per capita income relative to that of the United States will grow by a factor of two to three over the next half-century.

Community Credit : A New Perspective on America’s Communities

July 7, 2015 Comments off

Community Credit : A New Perspective on America’s Communities
Source: Federal Reserve Bank of New York

Community Credit is a new way to understand the economic well-being of communities by examining the credit behavior of households.

First, we measure each community – also known as a local credit economy – by the percentage of adults residing there who have credit scores in the New York Fed Consumer Credit Panel dataset. Then, each community is characterized based on the aggregated credit behavior of its adult residents.

These indicators of credit behavior are then used to assess each community’s ability to access credit and its credit stress level.

The information provided here may be used by community leaders for developing policy priorities, assessing promising actions, and tracking the impacts of programs.

Federal Reserve issues FOMC statement (June 17, 2015)

June 17, 2015 Comments off

Federal Reserve issues FOMC statement
Source: Federal Reserve Board

Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.

Productivity in the Slow Lane? The Role of Information and Communications Technology

June 15, 2015 Comments off

Productivity in the Slow Lane? The Role of Information and Communications Technology
Source: Federal Reserve Bank of Boston

Key Findings

  • We find that this pattern of a TFP speed-up followed by a slowdown has been widespread across industries.
  • Prior to the mid-2000s, investment in ICT capital grew much faster than investment in non-ICT capital for most industries, and there is little correlation across industries in the growth of these two types of investment. Since then, the relative growth of ICT investment has declined more than its relative price growth has increased. In addition, growth rates of the two types of investment have also become highly correlated across industries.
  • For those industries that use ICT more intensively, the acceleration in TFP in the early 2000s seems to have depended positively on the intensity of ICT investment in the second half of the 1990s, which is likely highly correlated with the unmeasured spending on restructuring. This can be construed as evidence that firms invested simultaneously in tangible ICT capital and intangible organizational capital that diverted resources but enhanced the future efficacy of ICT capital.