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Business Review


When the Bubble Bursts: Psychology or Fundamentals? icon-pdf (PDF format)

Lee Ohanian

The prices of stocks, bonds, and other assets frequently fluctuate, and sometimes these fluctuations are quite large. Such price shifts have important economic implications, including the possibility that asset prices have predictive power for the business cycle. In this article, Lee Ohanian analyzes the volatility of security prices and discusses whether movements in asset prices reflect changes in the fundamental value of the asset or whether extreme price changes may be associated with changes in market psychology.

The Cyclical Volatility of Interest Rates icon-pdf (PDF format)

Keith Sill

Interest rates change in response to a variety of economic events, such as changes in Fed policy, crises in financial markets, and changes in prospects for long-term economic growth and inflation. But such events are sporadic, and interest rates show a more regular pattern of volatility that corresponds to the business cycle. In this article, Keith Sill examines some facts and theory about the cyclical volatility of short-term and long-term interest rates.


Central City Decline: Regional or Neighborhood Solutions? icon-pdf (PDF format)

Richard Voith

The decline of a central city often has economic and social implications for an entire region. But where does the solution lie? Are regional approaches to problems concentrated in central cities warranted? Or should we seek local solutions by transforming cities into a group of smaller, more autonomous communities? Dick Voith looks at some of the issues involved in these questions and suggests that the regional benefits of improving a central city's economy are large.

Does Monetary Policy Have Differential Regional Effects? icon-pdf (PDF format)

Gerald A. Carlino and Robert H. DeFina

Do monetary policy actions have a uniform national effect? Or do the separate, but interdependent, regions of the country respond differently to changes in policy? In this article, Jerry Carlino and Bob DeFina demonstrate that monetary policy does have differential effects across regions. They also examine three reasons why the effects may differ: regional differences in the mix of interest-sensitive industries, in the ability of banks to alter their balance sheets, and in the mix of large and small borrowers.


Looking Ahead: Leading Indexes for Pennsylvania and New Jersey icon-pdf (PDF format)

Theodore M. Crone and Kevin Babyak

Many policymakers and business persons are interested not only in the course of the national economy but also in the prospects for their region's economy. Since 1994, the Philadelphia Fed has published monthly indexes of coincident indicators for the states in the Third Federal Reserve District. A natural complement would be a set of leading indexes. In this article, Ted Crone and Kevin Babyak introduce leading indexes for the two largest states in the District — Pennsylvania and New Jersey.

Inflation Forecasts: How Good Are They? icon-pdf (PDF format)

Dean Croushore

Forecasts of inflation affect decision-making in many segments of the economy. But in the early 1980s, economists found that forecasts in surveys taken over the past 20 years systematically underpredicted inflation. As a result, many economists stopped paying attention to forecasts. However, they may have abandoned them too quickly. In this article, Dean Croushore takes a closer look at survey forecasts and, after considering some relevant factors, concludes that inflation forecasts may not be as bad as you think.


Repealing Glass-Steagall: The Past Points the Way to the Future icon-pdf (PDF format)

Loretta J. Mester

Passed as part of the National Bank Act of 1933, the Glass-Steagall Act prohibits the mixing of commercial and investment bank activities. It was passed during a time of tumult in financial markets: the economy was in depression and there were many bank failures. Given the state of today's banking industry and the current economic climate, is it time to repeal Glass-Steagall? Congress has been debating the issue for some time. In this article, Loretta Mester weighs in with her analysis of the situation. Her conclusion? The data support repeal.

Value at Risk: A New Methodology for Measuring Portfolio Risk icon-pdf (PDF format)

Gregory P. Hopper

Many different types of institutions hold portfolios of assets, and prudent financial management dictates that these firms be alert to any risks these assets may carry. How can these institutions judge the likelihood and magnitude of potential losses on their portfolios? A new methodology called value at risk (VAR) can be used to estimate these losses. In this article, Greg Hopper describes the various methods used to calculate VAR, paying special attention to its weaknesses.


Taxes, Home Ownership, and the Allocation of Residential Real Estate Risks icon-pdf (PDF format)

Satyajit Chatterjee

Home equity is the predominant form of savings for most Americans because it helps them save on taxes. However, homeownership also determines how the risks of fluctuations in the value of residential real estate are borne. In this article, Satyajit Chatterjee looks at how the tax benefit of homeownership has moved households toward undiversified investments in risky residential real estate by making it costly for them to rent their homes. He also points out the often overlooked risk-allocation consequences of proposed changes in the U.S. tax code.

The Travel Market in the United States and the Third District icon-pdf (PDF format)

Timothy Schiller

How much economic activity does travel generate? How many jobs does the travel industry create? And how do the Third District states—Pennsylvania, New Jersey, and Delaware—stack up in terms of travel-related spending? Tim Schiller takes a look at these questions and discusses the importance of travel and tourism to the local and national economy.

November/December 1996

For Better and for Worse: Three Lending Relationships icon-pdf (PDF format)

Mitchell Berlin

Are close, long-term relationships between borrowers and lenders feasible in an increasingly competitive financial marketplace? How do relationships that have developed between banks and firms change when firms gain access to alternative funding sources, especially public securities markets? Can firms gain the best of both worlds by a judicious mixture of bank and public borrowing? Using three firms as examples, Mitchell Berlin sizes up the pros and cons of relationship lending.

The Suburban Housing Market: The Effects of City and Suburban Job Growth
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Richard Voith

How does the location of new jobs in a metropolitan area affect the suburban housing market? Does it matter whether job growth occurs in the city or in the suburbs? And who, if anyone, benefits from job growth? Dick Voith takes a look at housing prices and construction rates in some Philadelphia suburbs to determine the impact of employment growth on the value of real estate assets.

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