Economic Insights

The quarterly Economic Insights features nontechnical articles on monetary policy, banking, and national, regional, and international economics, all written for a wide audience.

Articles

Vol. 3, No. 2, Summer

Are Higher Capital Requirements Worth It? Curbs on Bank Leverage Are Intended to Prevent Bailouts but Can Slow Economic Growth. the Challenge Is to Obtain Precise Estimates of the Impact So Policymakers Can Weigh the Tradeoff
When trillions of dollars in loans and other assets went bad in the financial crisis, banks across the globe were unprepared to absorb the losses. The bank failures and government assistance that followed led policymakers in the U.S. and worldwide...
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Bitcoin vs. the Buck: Is Currency Competition a Good Tiling? Ever since the U.S. Established a Single Currency in the 19th Century, the Idea of Private Money Has Evoked Panics and Bank Failures. in the Cryptocurrency Era, Can the Dollar Stay Sound?
A central proposition in economics is that competition is good. Free markets are typically the most efficient way to provide people with the goods and services they want and to allocate resources and organize economic activity throughout the economy....
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Research Update: These Papers by Philadelphia Fed Economists, Analysts, and Visiting Scholars Represent Preliminary Research That Is Being Circulated for Discussion Purposes
Declining Labor Turnover and Turbulence The rate of job loss has been on a secular decline for the last four decades or longer. Changes in demographics or industry composition do not account for the trend. This paper seeks to identify possible sources...
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Vol. 3, No. 1, Spring

The Policy Perils of Low Interest Rates: Well before Central Banks Slashed Rates to Fight the Great Recession, Long-Term Market Rates Began Slipping. with No Reversal in Sight, Will Policymakers Lose Their Main Recession-Fighting Tool?
The primary tool that central banks have to fight recessions is to cut interest rates so as to encourage enough borrowing and spending to return the economy to full employment. But as we experienced during the Great Recession, there is a natural limit...
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Banking Trends: Skin in the Game in the CMBS Market: Issuers of Commercial Mortgage-Backed Securities Must Now Retain a Portion on Their Own Books. What Evidence Is There That the Rule Will Reduce Risky Lending?
The Dodd-Frank Act imposes reforms that are designed to prevent a repeat of the disastrous performance of residential mortgage-backed securities and--less remarked upon--commercial mortgage-backed securities (CMBS) during the financial crisis. Some...
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Nontraditional Insurance and Risks to Financial Stability: Do Insurance Companies Pose a Threat to Financial Stability? Historically, the Answer Has Been No. but the Insurance Industry's Expansion into Nontraditional Activities Has Prompted Reconsideration
When we think of the U.S. insurance business, we usually think of companies that sell life, auto, or homeowner policies. The conventional wisdom is that these traditional insurance activities are regulated by the states largely to protect individual...
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Research Update: These Papers by Philadelphia Fed Economists, Analysts, and Visiting Scholars Represent Preliminary Research That Is Being Circulated for Discussion Purposes
Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform Bankruptcy reform in 2005 restricted debtors' ability to discharge private student loan debt. The reform was motivated by the perceived incentive of some borrowers...
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Vol. 2, No. 4, Winter

Regional Spotlight: Purchasing Power across the U.S.: Where You Live Can Determine How Far a Dollar Goes. but Pay Varies Regionally, Too. to Get a True Picture of an Area's Afford Ability, It Helps to Understand Regional Price Parities
It's common knowledge that the cost of living varies drastically across the United States. Housing prices in the San Jose area are the highest for any metro area in the country, while housing can be had in parts of Alabama for nearly one-tenth that....
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Why Are Men Working Less These Days? Common Explanations for the Drop in Employment among Men without College Degrees Invoke Everything from Robots to Disability to Working Wives. but What Does the Evidence Say?
Employment of men in their prime working years has fallen over the past five decades, particularly among men without college educations. This decline has alarmed policymakers. Noting that the prime working years are typically a worker's most productive,...
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Where Is Everybody? the Shrinking Labor Force Participation Rate More Americans Are Neither Working nor Looking for Work. What Is Going On?
The labor force participation rate has been falling in this country for nearly two decades. For men of prime working age, it has been falling for more than half a century. And the fall has been particularly acute among black men. The decline in participation...
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Research Update: These Papers by Philadelphia Fed Economists, Analysts, and Visiting Scholars Represent Preliminary Research That Is Being Circulated for Discussion Purposes
Recall and Unemployment The authors document in the Survey of Income and Program Participation covering 1990-2013 that a surprisingly large share of workers return to their previous employer after a jobless spell and experience very different unemployment...
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Vol. 2, No. 3, Fall

Government Debtin Domestic Hands Duringa Crisis: When Banks Load Up on Their Government's Bonds, Lending to Firms and Households Can Get Crowded out. but When the Sovereign Debt Market Is in Turmoil, Such Concentrations May Play a Surprising Role
After adopting the euro in 2002, Greece, Ireland, Spain, and Portugal found that banks and investors in other euro area countries were more eager to buy their government bonds. This rise in foreign demand for the sovereign debt of these smaller, less...
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Understanding Gentrification's Causes: What Do Three Centuries of Philadelphia History Tell Us about Today's Changing Neighborhoods?
Recent gentrification in central city U.S. neighborhoods has generated controversy and increased interest from policymakers, researchers, and the public regarding the consequences of neighborhood change. In gentrifying areas, some residents raise concerns...
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The Rise in Loan-to-Deposit Ratios: Is 80 the New60? Liquidity Ratios at Small Banks Have Climbed in Recent Decades. Why Has This Happened? Should Regulators Be Concerned?
A traditional signal that a bank may not have enough liquid assets to cover a sudden loss of funding has increased dramatically at small banks in recent decades. Small banks' median ratio of the value of their loans outstanding to the value of their...
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Research Update: These Papers by Philadelphia Fed Economists, Analysts, and Visiting Scholars Represent Preliminary Research That Is Being Circulated for Discussion Purposes
Where Do Students Go When For-Profit Colleges Lose Federal Aid? Recent federal investigations and new regulations have resulted in restrictions on for-profit institutions' access to federal student aid. The authors examine the enrollment effects...
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Vol. 2, No. 2, Summer

Taxing the 1 Percent: Raising Taxes on Top Earners Is Often Seen as a Straightforward Way to Stem Inequality. the Trick Is Preserving Efficient Revenue Generation and Work Incentives for the Economy's Most Productive Contributors
Income inequality has been widening in the United States since the 1970s and is now greater than in any other industrialized country. While U.S. median household income has barely grown over the past four decades, the income of the top-earning households...
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The Value of Loyal Customers: Is There a Rational Reason That Stock Prices in Some Industries Greatly Exceed Book Values? the Answer May Lie in the Idea That Customers Are Capital
No business can survive, let alone profit, without customers. For most businesses, it takes money and creative effort to attract and retain customers. Businesses therefore have clear incentives to spend resources on these activities. Reflecting how...
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Regional Spotlight: Surveying the South Jersey Economy: After 25 Years and Two Recessions, How Well Has Our South Jersey Business Survey Tracked the Local Economy?
The South Jersey Business Survey has been asking firms the same questions every quarter without interruption for 25 years, providing a consistent basis for observing ups and downs in the area's economy. The Philadelphia Fed has conducted this survey...
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Research Update: Visit Our Website for More Abstracts and Papers of Interest to the Professional Researcher Produced by Economists and Visiting Scholars at the Philadelphia Fed
Market Discipline in the Secondary Bond Market: The Case Systemically Important Banks The authors investigate the association between the yields on debt issued by U.S. systemically important banks (SIBs) and their idiosyncratic risk factors, macroeconomic...
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Vol. 2, No. 1, Spring

Making Sense of Urban Patterns: Why Do Cities Everywhere Exhibit the Same General Patterns of Density and Development? and How Can We Explain Some Striking Variations?
The streets of Philadelphia roll west through a collage of urban environments familiar to city dwellers nearly everywhere. From Penn Square, the central site of the iconic stone City Hall, Market Street traverses a canyon of concrete and glass office...
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Did the Fiscal Stimulus Work? Billions Were Spent to Recover from the Great Recession. How Can We Know Whether Taxpayers Got a Decent Bang for the Buck?
More than seven years after the enactment of the American Recovery and Reinvestment Act, economists, legislators, and the American people continue to debate the effectiveness of the measure. The largest U.S. fiscal stimulus since the 1930s, the Recovery...
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Credit Unions' Expanding Footprint: Is There Any Evidence New Rules Could Cause Small Banks to Lose Market Share to Credit Unions?
Consumers should have options in the financial marketplace. They vote with their feet and wallets. I've always believed there should be at least one credit union option available to every American. --Rick Metsger, chairman, National Credit Union Administration...
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RESEARCH UPDATE: These Working Papers Present Preliminary Findings of Research Conducted by Philadelphia Fed Economists, Analysts, and Visiting Scholars. Visit Our Website for More Abstracts and Papers
THE PERILS OF NOMINAL TARGETS A monetary authority can be committed to pursuing an inflation, price-level, or nominal-GDP target yet systematically fail to achieve the prescribed goal. Constrained by the zero lower bound on the policy rate, the...
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Vol. 1, No. 4, Winter

Just How Important Are New Businesses?
New firms are the job engines of the economy, but firm formation has diminished. Should we worry? New businesses create most of the new jobs in the U.S. economy each year--not small businesses, as popular wisdom holds. It may thus seem troubling...
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The State of the States
Even if the U.S. economy is thriving, some states can be in recession, and vice versa. But identifying state cycles is not so easy. Of the five U.S. recessions since 1979, Florida's economy continued to expand throughout three of them. In contrast,...
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Did Dodd-Frank End 'Too Big to Fail'? despite Reforms, Do Big Banks Still Benefit from Market Perceptions That the Government Will Bail Them out If They Falter?
During the financial crisis in 2008, the U.S. government bailed out some very large banks for fear the collapse of any bank that large would profoundly harm the U.S. economy and destabilize the global financial system. (1) That is, they were too big...
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Valuing "Free" Media in GDP: An Experimental Approach
"Free" consumer entertainment and information from the Internet, largely supported by advertising revenues, has had a major impact on consumer behavior. Some economists believe that measured gross domestic product (GDP) growth is badly underestimated...
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Vol. 1, No. 3, Fall

All Layoffs Are Not Created Equal: U.S. Firms Use Temporary versus Permanent Layoffs More Often Than It Might Appear-A Finding That May Suggest a Different Focus for Labor Market Policy
Finding any new job takes time and resources. Finding the right job is especially difficult. For workers and employers alike, it is costly to determine whether they will strike a good match regarding pay, location, schedule, skills, work environment,...
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The Free-Banking Era: A Lesson for Today? A Volatile Episode in U.S. Banking History Might Have Something to Teach about Current Regulatory Challenges-Though Perhaps Not the Lesson One Might Expect
What would happen if anyone could open a bank at will? What if you or I could hang a sign in a storefront or create a website and start attracting borrowers and depositors with competitive interest rates? What if any sort of firm, big or small, could...
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The Growing Role of CRE Lending
Commercial real estate (CRE) has grown rapidly as a share of total U.S. economic activity and is the largest lending category for banks. (1) The growth of CRE loans has been particularly dramatic for small and medium-sized banks. CRE is also the riskiest...
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Vol. 1, No. 2, Summer

Housing's Role in the Slow Recovery
Why has homebuilding recovered so sluggishly after the Great Recession? The evidence points to some unusual supply and demand factors. Homebuilding contributed to overall economic growth in every previous U.S. economic recovery since 1947, yet contributed...
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Chapter 11 for Countries?
Sovereign default risk has been growing, yet the world lacks an adequate mechanism for averting debt crises. It might be time to resurrect a plan modeled on the U.S. Bankruptcy Code. For the past 40 years or so, every decade seems to have brought...
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Pension Gap Perils: Are the Significant Shortfalls in Tristate Public Pension Funds Actually Far Worse Than Official Reports Suggest?
Pennsylvania and New Jersey's underfunded public pension systems have severely strained their state budgets and put their taxpayers at risk of bearing a potentially significant financial burden. Though Delaware's gap is considerably narrower, its pension...
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Vol. 1, No. 1, Spring

Monetary Policy and the New Normal
[ILLUSTRATION OMITTED] Is the economy in for a prolonged spell of slow growth, as some believe, or a burst of innovation and productivity? In either event, policymakers must pay close attention to productivity trends. There is growing debate...
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Did Quantitative Easing Work?
Did QE lower yields and stimulate the economy? What about risks? Weighing the evidence requires a bit of theory. As the economy began to falter amid the financial crisis in the fall of 2007, the Federal Reserve responded in the usual fashion by...
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How Dodd-Frank Affects Small Bank Costs: Do Stricter Regulations Enacted since the Financial Crisis Pose a Significant Burden?
"With respect to supervisory regulations and policies, we recognize that the cost of compliance can have a disproportionate impact on smaller banks, as they have fewer staff members available to help comply with additional regulations." --Federal...
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