Economic Review
Fourth Quarter 2002 

Central Bank Perspectives on Stabilization Policy—Articles from the bank's 2002 Economic Policy Symposium, 'Rethinking Stabilization Policy'
Alan Greenspan
Otmar Issing
Guillermo Ortiz
Yutaka Yamaguchi
David Dodge

For some time, the use of monetary and fiscal policies to smooth business cycle fluctuations has taken a back seat to longer term objectives of restoring price stability and fiscal balance. More recently, however, weaker economic performance in some of the world’s economies, most notably in Japan and the United States, has led to renewed interest in the use of short-run stabilization policy.

This year the bank’s economic policy symposium, “Rethinking Stabilization Policy,” explored the potential scope for stabilization policy in this new environment. The papers presented at the symposium and the ensuing discussion focused on a number of key issues including: reasons for the renewed interest in stabilization policy, the effectiveness and limitations of stabilization policy, and whether the use of short-run stabilization policy conflicts with the pursuit of longer term macroeconomic objectives.

The articles included in this special issue of the Economic Review provide perspectives on stabilization policy from five prominent central bank officials: Alan Greenspan, Otmar Issing, Guillermo Ortiz, Yukata Yamaguchi, and David Dodge. As these articles suggest, policymakers in different countries clearly share a common set of core values that guide policy. At the same time, monetary policy decisions must also be tailored to the unique circumstances of individual countries. Viewed individually, each of these presentations is highly interesting and informative. Taken together, they provide a broad perspective on the challenges facing policymakers in a changing economic environment.

Back to top          Economic Review home 

Do Primary Energy Resources Influence Industry Location?
By Jason P. Martinek and Michael J. Orlando 

By choosing to locate in a particular place, firms create employment opportunities for workers living there. And the wages they pay increase demand for local goods and services, creating additional job opportunities and further increasing the tax base. Consequently, state and local governments go to great lengths to encourage firms to locate within their boundaries.

In recent years, volatility in energy markets due to deregulation and events in the Middle East have increased the role that energy resource endowments may play in firm location. Thus, economic development agencies in energy producing states have highlighted their natural advantages as a way to attract and retain businesses. Yet there is scant evidence that firms base their location decisions on the availability of primary energy resources, such as coal, oil, and natural gas.

Martinek and Orlando explore the role of primary energy resources in industry location. They examine the relationship between state energy supplies and employment in energy-intensive industries and suggest there is a limited relationship between the production of primary energy resources and industry location. State energy supplies are associated with the location of only the most energy-intensive firms. In other energy-intensive industries, firm location decisions appear largely unresponsive to state energy conditions.

Back to top          Economic Review home 

Building the Rural Economy with High-Growth Entrepreneurs
By Jason Henderson 

Entrepreneurs create economic growth in their communities by forming new firms. Each year during the past decade, more than half a million businesses were started that added new jobs in the United States. In the 1990s, during the longest economic expansion in the United States economy, the majority of new jobs were created by small and medium-sized entrepreneurs operating high-growth businesses.

Because entrepreneurs are such a wellspring of growth in the economy, many rural policymakers have shifted their long-time focus of recruiting existing firms, such as branch plants, to developing new entrepreneurs. New policies generally support a wide range of entrepreneurs. However, policies often fail to recognize that the benefits of entrepreneurs can vary dramatically, depending on the entrepreneur’s desire to build a high-growth business. And rural areas often lack these high-growth entrepreneurs.

Henderson reviews entrepreneurial activity in rural America and discusses some of the new ways policymakers are beginning to encourage high-growth entrepreneurs in their communities. After discussing the benefits entrepreneurs offer communities, he examines the pattern of entrepreneurship in rural areas and the difficulties many rural communities face in supporting high-growth entrepreneurs. Finally, he discusses some of the policies supporting the startup and growth of this valuable resource.

Back to top          Economic Review home