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Communicating a Policy Path: The Next Frontier in
Central Bank Transparency
- (PDF 106K)
By George
A. Kahn In the last two decades, central banks have taken a variety of
steps to increase the transparency of monetary policy. Today, many
economists are suggesting ways to further increase transparency. One area of
considerable interest is the outlook for the future path of the policy rate.
The policy rate is the short-term, typically overnight, interest rate that
central bankers use to adjust the stance of monetary policy. While central
banks typically announce changes in the policy rate when they occur, very
few central banks provide an explicit description of where the policy rate
is likely to be set in the future.
Yet, this information is clearly of value to financial markets. Financial
market participants want to know the policy path so they can properly price
long-term assets, such as government notes and bonds, which depend in part
on future short rates. In addition, speculation about the outlook for the
policy rate is a staple of the financial press, and futures markets have
developed to allow investors to hedge risk or speculate about future policy
moves. More information about the policy path might make these markets more
efficient and reduce asset price volatility.
Kahn surveys current central bank practices relating to transparency and the
future path of the policy rate. He identifies some of the conceptual and
practical issues that may limit central banks’ ability and willingness to
provide more information about the policy path to financial markets.
What Happened to the Gains From Strong Productivity Growth?
- (PDF 111K)
By
Jonathan L. Willis and Julie Wroblewski Over the past decade, the United
States economy has experienced strong economic growth due in large part to a
resurgence in productivity growth. Little attention has been paid, however,
to examining how the gains from this growth have been distributed. In the
past few years, observers have noted that the share of income paid to labor
has been falling while corporate profits have surged. Also, observers have
pointed out that income inequality appears to have widened, with little
increase in real wages for low-income workers while executive pay has
skyrocketed. Consequently, there has been a growing sentiment among the
public that the average household is not sharing in the recent economic
prosperity.
Willis and Wroblewski examine how the gains from increased productivity
growth have been distributed. Their analysis focuses on two questions: Has
the increase in productivity growth led to a change in the income shares
for capital and labor? And, has the strong productivity growth over the past
decade led to a change in the distribution of income across households?
The authors find that the shares of income allocated to labor and capital
have been constant on average over the past 35 years. However, during the
last decade of high productivity growth, low-income households have seen no
increase in real income, and at most only the top 10 percent of the
household income distribution experienced real income growth equal to or
greater than average labor productivity growth.
Will Energy Markets Refuel the Rural Economy?
- (PDF 585K)
By Jason
Henderson and Maria Akers The rural economy began 2006 facing an uncertain
outlook. For two years, rural growth had been unusually strong. But rising
energy prices threatened to stall the expansion. Many businesses had already
been weakened by high input costs, and many households were feeling squeezed
by higher costs for gas and heating fuel. As the year progressed, however,
some rural communities were able to harness the power of high energy prices
by taking part in its production.
Energy activity helped boost the fortunes of many rural places, but the
rural economy as a whole slowed in 2006. Nonfarm economic growth moderated
as production costs increased and construction activity cooled. Farm incomes
also declined as severe drought limited production and higher energy prices
cut profits. Still, rising crop prices fueled by ethanol production kindled
optimism for new economic engines in rural America.
Henderson and Akers review the state of the rural economy. First, they
discuss the slower, but steadier, expansion on Main Streets. Then they
examine the health of the farm economy. Finally, they explore rural
prospects for 2007 and discuss the influences of robust energy activity on
the rural economy.
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