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Business Review


Banking Industry Consolidation: What's a Small Business to Do?

Loretta J. Mester

Relaxation of the rules governing where banks can expand and new technologies for providing banking services have contributed to rapid consolidation in the industry. In addition, the number of commercial banks in the United States has been shrinking, and banks have been getting larger. Should we be worried that consolidation will lead to a contraction of credit to small businesses? Read what Loretta Mester has to say on the subject in this article. icon-pdf [Adobe Acrobat (.pdf) version]

Real Business Cycles: A Legacy of Countercyclical Policies?

Satyajit Chatterjee

If business cycles are caused mostly by changes in productivity, rather than by monetary and financial disturbances, what role do monetary and fiscal policies play? In this article, Satyajit Chatterjee discusses the possibility that countercyclical monetary and fiscal policies have played an important role in reducing the severity of business cycles since World War II but that additional countercyclical policies that try to offset movements in productivity aren't likely to be beneficial.
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Does the Federal Tax Treatment of Housing Affect the Pattern of Metropolitan Development?

Richard Voith

The U.S. tax code allows home owners to deduct mortgage interest and property taxes on their federal income tax forms. It also gives special treatment to the capital gains realized from the sale of owner-occupied housing. These advantages encourage investment in owner-occupied housing. But do these tax breaks have other, more far-reaching consequences? In this article, Dick Voith looks at how the tax code's special treatment of owner-occupied housing may affect metropolitan development.
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Regional Trends in Federal Government Spending

Timothy Schiller

State governments, congressional delegations, and regional associations regularly examine federal expenditures to see how their state or region is faring in the distribution of federal monies. Although these groups often look at changes in the patterns of annual spending, a long-term perspective reveals how demographic trends and shifting priorities drive year-to-year changes in spending in the states. In this article, Tim Schiller takes that long-term perspective by looking at the decade from 1986 to 1996 and outlining what regional shifts in federal spending took place and why.
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Forecasts, Indicators, and Monetary Policy

Keith Sill

When setting monetary policy, should policymakers target variables such as commodity prices or interest rate spreads, which are sensitive to the market's expectations of inflation? Or are variables such as money growth, which are tied to the underlying causes of inflation and economic growth, better indicators of the economy's path? Keith Sill considers these questions as he reviews indicators past and present.
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Jack of All Trades? Product Diversification in Nonfinancial Firms

Mitchell Berlin

While financial firms keep searching for the secret formula to make profits out of providing multiple financial services under one roof, nonfinancial firms seem headed in the opposite direction. What can financial firms learn from the experience of diversified nonfinancial firms and those firms that have increased their focus? Mitchell Berlin examines this question and offers some possible explanations as to why nonfinancial firms have found it so hard to profit from diversification.
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Intangibles: What Put the New in the New Economy?

Leonard Nakamura

Generating new products requires corporations to spend very large sums of money. These expenditures often lead to the development of intangible assets, such as patents and copyrights, that can add considerably to a company's coffers and stock market value. However, in general, our accounting conventions do not recognize these expenditures as investments--a holdover from the days when these types of investments were a negligible portion of total investment. Leonard Nakamura argues that these conventions cause profits and savings to be understated and that correcting them makes U.S. economic and financial performance more comprehensible.
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Do States Respond Differently to Changes in Monetary Policy?

Gerald A. Carlino and Robert H. DeFina

Do the proportion of interest-sensitive industries, the number of small firms, and the concentration of small banks determine how monetary policy influences state economies? In this article, Jerry Carlino and Bob DeFina extend to the state level their earlier study that looked at these factors and their effects on a region's economies. Are the responses the same? Read the results of Carlino and DeFina's study.
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How Useful Are Forecasts of Corporate Profits?

Dean Croushore

If forecasters predict higher earnings for corporations, the stock market will rise. Stock prices will drop with a forecast of lower earnings. But are such forecasts on the money? Dean Croushore uses data from the Survey of Professional Forecasters to check the accuracy of forecasts of corporate profits. The results show that, despite the volatility of corporate profits, the forecasts are rational.
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The Philadelphia Story: A New Forecasting Model for the Region

Theodore M. Crone and Michael P. McLaughlin

Several years ago, the Philadelphia Fed developed a small forecasting model for each of the three states in the Third Federal Reserve District—Pennsylvania, New Jersey, and Delaware. This article introduces a similar model that forecasts major economic variables for the Philadelphia metropolitan area and the city of Philadelphia. Read this article and find out what the model predicts for the metro area and the city.
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November/December 1999

The Euro and the European Central Bank

Jeffrey M. Wrase

The formation of a monetary union by 11 European countries has received a lot of notice from the press since January 1, 1999, when the union's common currency, the euro, was officially introduced. To facilitate adoption of a single currency, these same countries have established a central bank that sets a common monetary policy for the members of the monetary union. In this article, Jeff Wrase gives some background on the European monetary union, outlines the procedure for introduction of the euro, and describes the workings of the European Central Bank. He also compares and contrasts the operations of the ECB with those of our own central bank, the Federal Reserve System.
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Patent Reform: A Mixed Blessing for the U.S. Economy

Robert Hunt

The 1980s represented a period of dramatic change in the design and enforcement of U.S. intellectual property law. Many of these changes were adopted in the hopes of stimulating private research and development and improving the technological competitiveness of American industries. In this article, Robert Hunt examines the effects of an especially important aspect of these changes: many more inventions qualify for patent protection than before. While it seems logical that making patents easier to obtain will encourage more inventive activity, economic analysis reveals this is not always true, and it is less likely to be true in industries that innovate rapidly.
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