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Business Review

November/December 2000

A New Look at Economic Indexes for the States in The Third District

Theodore M. Crone

If we want to know how things are going in the economy, which measures should we look at? Unemployment? GDP? Or something else? One solution is to combine several measures into a composite index of current or future economic activity. Several years ago, the Philadelphia Fed did just that for the states in the Third District. Now, a number of factors suggest that revisions of those indexes are in order. This article explains what those revisions entail and why the new indexes are better than the old ones.
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From Centralization to Deconcentration: People and Jobs Spread Out

Gerald A. Carlino

During the first half of the 20th century, people and jobs in the United States moved from rural to urban areas. After World War II, the U.S. saw other important shifts, including deconcentration — the movement of people and jobs from large, dense MSAs to small, less dense ones. This article looks at various aspects of deconcentration to see just how fast growth has been in less dense MSAs, whether trends for population and employment are the same, and whether the experience of MSAs in the frostbelt and sunbelt has been the same.
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September/October 2000

Understanding Asset Values: Stock Prices, Exchange Rates, and the "Peso Problem"

Keith Sill

When the weather forecast calls for rain, people will carry umbrellas. That's just one illustration of how an expected-and likely-event influences behavior. In financial markets, the behavior of exchange rates and the prices of assets such as stocks and bonds depend not only on the most likely future outcomes but also on possible, but less likely, outcomes. But a possible outcome can sometimes be so different from today's conditions that asset prices, which incorporate extreme possibilities, make financial markets look flawed, even if they aren't. Economists call such a condition a peso problem. In this article, Keith Sill talks about how peso problems can affect asset values.
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A Funny Thing Happened on the Way to the Data Bank: A Real-Time Data Set for Macroeconomists

Dean Croushore and Tom Stark

Economic policies are set and forecasts are made based on data that policymakers and forecasters have available to them. But such data are often revised — at times significantly. As a result, when policies and forecasts are viewed from the perspective of today's data, they may not seem sensible. Recognizing this problem, the Research Department at the Philadelphia Fed created a real-time data set so that economists today have the same data that were available to policymakers and forecasters in the past. In this article, Dean Croushore and Tom Stark tell how the data set was constructed, show how large the data revisions can be, illustrate how forecasting models may be sensitive to revisions, and how revisions change — sometimes significantly — the results of empirical research.
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July/August 2000

Financial Modernization: Vastly Different or Fundamentally the Same?

Edward G. Boehne

The Financial Modernization Act (Gramm-Leach-Bliley), passed by Congress last fall, represents another step in dismantling a regulatory structure established almost 70 years ago. Just what far-reaching consequences will enactment of this legislation have? In this article, Ed Boehne looks at five questions about banking industry trends in relation to implementation of Gramm-Leach-Bliley. In the end, Boehne argues, the financial services industry will be different in terms of its structure and delivery systems. Nevertheless, it will remain fundamentally the same in one important way: the underpinning of a stable and successful financial system has been, and will continue to be, public confidence.
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Economics and The New Economy: The Invisible Hand Meets Creative Destruction

Leonard Nakamura

In the 18th century, Adam Smith offered his theory of the invisible hand and the view that perfect competition is the main spur to economic efficiency. The theory of the invisible hand, as it has evolved in modern economic thought, treats creative activity as being outside the scope of economic theory. In the 20th century, Joseph Schumpeter offered an alternative perspective: creativity is an economic activity. He argued that a capitalist market system rewards change by allowing those who create new products and processes to capture some of the benefits of their creations in the form of short-term monopoly profits, a situation that promotes what Schumpeter called "creative destruction." What should the fundamental paradigm of economics be: creative destruction or the invisible hand? In this article, Leonard Nakamura offers some possible answers to this question.
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May/June 2000

Why Don't Banks Take Stock?

Mitchell Berlin

Banks in the United States are forbidden to hold stock in nonfinancial firms under most circumstances. The same is not true of banks in other countries. But are U.S. banks really shackled compared with their foreign counterparts? Do such restrictions make a difference in banks' behavior? Mitchell Berlin discusses these and other questions about banks' financial claims in nonfinancial firms and offers some possible answers.
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Has Suburbanization Diminished the Importance of Access to Center City?

Richard Voith

Nine years ago, the Business Review examined the role that access to Center City Philadelphia played in people's choices about where to live and how to commute. Using 1980 census data, that analysis concluded that access to Center City by both car and public transportation shaped people's choices in important ways. But since 1980, the Philadelphia metropolitan area has undergone a great deal of change, including a decentralization of both population and employment. In this article, Dick Voith revisits the questions first posed almost a decade ago to see how employment and population shifts influenced people's choices in the 1990s.
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March/April 2000

The Changing Nature of The Payments System: Should New Players Mean New Rules?

Loretta J. Mester

Traditional forms of payment, such as currency, coin, and paper checks, are quickly being eclipsed by electronic forms, such as payments made by ATM, credit card, or automated clearing house. More recently, smart cards, debit cards, and PC banking have joined this electronic army of new ways to make payments. A parallel development has been the entrance of many nonbank players into the payments arena. Nowadays, settlement and clearing can be done by entities that are not necessarily banks, the customary center of the U.S. payments system. As these new entrants grow in number and become more popular, concerns about regulating these newcomers have arisen. In this article, Loretta Mester documents changes in the use of various forms of retail payments and outlines some of the regulatory concerns as she considers the question, Should new players mean new rules?
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Update to data in this article

From Cycles to Shocks: Progress in Business-Cycle Theory

Satyajit Chatterjee

Boom leads to recession, recession to boom, and the economy is caught in a self-sustaining cycle. Or is it? More recent economic theory states that cyclical fluctuations in the economy are caused by shocks and other disturbances that continually buffet the economy. In this article, Satyajit Chatterjee examines the historical process by which the explanation of fluctuations in the economy has evolved from a theory of cycles to one of shocks.
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The Finance and Growth Nexus

Aubhik Khan

Does financial development lead to greater economic growth? Or does economic growth lead to more highly developed financial systems? In this article, Aubhik Khan presents some recent evidence that appears to support the first question: financial development may also have a significant impact on a nation's rate of economic growth.
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Agriculture in the Third District: Fertile Fields Outside the Farm Belt

Timothy Schiller

Although not part of the nation's agricultural heartland, the three states of the Third Federal Reserve District (Pennsylvania, New Jersey, and Delaware) nonetheless supply a significant percentage of some commodities. In some parts of the region, agriculture is a significant part of the local economy. In this article, Tim Schiller looks at the contributions the three states make to the nation's agricultural bounty.
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