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Business Review

JANUARY/FEBRUARY 1997

Making Payments on the Internet

James J. McAndrews

To become an active market in goods and services, the Internet must overcome a fundamental hurdle: a way must be devised for buyers and sellers to securely and conveniently exchange payment over the Internet. Software companies and financial institutions are now developing methods that will allow people to pay over the Internet. James McAndrews reviews these efforts and looks at the importance of security, authenticity, and privacy — factors often taken for granted in other types of payment.
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The Economic Benefits and Risks of Derivative Securities

Keith Sill

Certain events have raised concern about the risks associated with derivatives trading — witness Orange County, California or Procter & Gamble, both of which lost large sums of money using derivatives. However, the popular discussion often loses track of the benefits derivatives hold for firms, investors, and the economy as a whole. Have derivatives received a bum rap? Keith Sill admits that derivatives have risks, especially to the uninitiated, but they also have a great deal of value for the economy as well.
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MARCH/APRIL 1997

Is the U.S. Economy Really Growing Too Slowly? Maybe We're Measuring Growth Wrong

Leonard Nakamura

Has American economic progress slowed dramatically — or even stopped? Or are the statistics wrong: Has the U.S. economy been experiencing strong growth, but our official measures fail to reflect it? In this article, Leonard Nakamura explores how economic progress is measured and discusses some of the policy implications that arise from alternative measures of our rate of growth.
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The Livingston Survey: Still Useful After All These Years

Dean Croushore

The decisions of households, firms, and government agencies depend on forecasts of the overall economy. Large firms and the federal government often have the resources to hire their own economists to provide forecasts. But households, small firms, and local governments often depend on surveys of forecasters to get their information. In this article, Dean Croushore spotlights the Livingston Survey, which, even after 50 years, still provides useful forecasts of the economy.
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MAY/JUNE 1997

Where Have all the Factory Jobs Gone — And Why?

Theodore M. Crone

Over the past 30 years, the three states of the Third Federal Reserve District have lost more than one-third of their manufacturing jobs. And that job loss has accelerated over the past 15 years. Despite this, the region's manufacturing output has expanded over the same period, although much more slowly than the nation's. Why has the region's manufacturing sector lagged behind? In this article, Ted Crone looks at shifts in markets and differences in costs as possible culprits.
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Regional Economies: Separating Trends From Cycles

Gerald Carlino and Keith Sill

The various regions of the United States, although linked, respond differently to changing economic circumstances. Traditional approaches to understanding these different reactions have relied on the assumption that long-run trends in regional income or employment are constant. Recently, many economists have adopted the view that trends also change during business cycles. Using a new technique, Jerry Carlino and Keith Sill distinguished changing trends from cycles in the eight major regions of the United States and identified regions that have similar cycles. In this article, they share their results.
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JULY/AUGUST 1997

Inflation-Indexed Bonds: How Do They Work?

Jeffrey M. Wrase

In January 1997, the United States Treasury, after years of debate, issued its first inflation-indexed bonds. These securities differ from conventional bonds in that principal and interest payments are linked to a price index. Thus, the purchasing power of an investor's savings is protected from inflation. In this article, Jeffrey Wrase provides a simple description of the Treasury's new offering and discusses why indexed bonds may be useful to investors, the Treasury, and policymakers.
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How Capital Taxes Harm Economic Growth: Britain Versus the United States

Lee E. Ohanian

The different methods used by Great Britain and the United States to finance World War II had a significant impact on postwar economic growth in the two countries. In this article, Lee Ohanian discusses the evolution of war-finance policies in the two countries and examines how the different approaches — taxing capital income versus issuing government debt — led to differences in economic performance after the war.
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SEPTEMBER/OCTOBER 1997

What's the Point of Credit Scoring?

Loretta J. Mester

Credit scoring is already widely used for consumer lending and is becoming more commonly used in mortgage lending. Now, small business lending is getting into the scoring act. What does this mean for the commercial loan industry? And will it benefit small businesses? In this article, Loretta Mester explains the basics of credit scoring, discusses some of the models used, and looks at some of the implications of the wider use of credit scoring.
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What Determines the Exchange Rate: Economic Factors or Market Sentiment?

Gregory P. Hopper

Do economic factors influence exchange rates? Or does market sentiment play a bigger role? Are short-run exchange rates predictable? Greg Hopper reviews exchange-rate economics, focusing on what is predictable and what isn't. He also examines the practical implications of exchange-rate theories for currency option pricing, risk management, and portfolio selection.
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November/December 1997

Are Bank Runs Contagious?

Ted Temzelides

History shows that banks are subject to runs and panics. Researchers disagree, however, about whether runs are contagious: that is, do problems at insolvent banks spread to solvent ones? If runs are contagious, what, if anything, can be done to stop the spread, and what are the implications for deposit insurance and banking regulations? In this article, Ted Temzelides reviews the basic theory and presents some recent evidence on contagious bank runs.
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Network Issues and Payment Systems

James J. McAndrews

Highways, railroads, pipelines—we see or hear about these types of physical networks almost every day. But information systems, such as the Internet, and payment systems, such as ATMs and credit cards, also involve networks. Hence, understanding the economics of networks and the unique features of network-dependent industries is crucial to modern life. In this article, James McAndrews outlines some of the unique features of network-dependent industries. He also analyzes some related payment-system issues and demonstrates that determining appropriate public policy would be difficult without a knowledge of the economics of payment networks.
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