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- The Natural Rate and Inflationary Pressures
By Stuart E. Weiner The natural rate of unemployment has become
an important topic recently as the Federal Reserve has raised short-term interest rates in
an attempt to keep the economy from overheating. The natural rate represents the lowest
possible unemployment rate that is consistent with stable inflation. As the economy has
approached its natural rate this year, the Federal Reserve has taken a series of timely
policy actions. Weiner examines the close historical relationship between the natural rate
and inflationary pressures and discusses near-term policy implications.
This article is an updated version of remarks made before the Board of
Directors of the Federal Reserve Bank of Kansas City on April 7, 1994. Underlying research
results are reported in the author's "New Estimates of the Natural Rate of
Unemployment," which appeared in the Fourth Quarter 1993 issue of Economic Review.
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Nominal GDP Targeting
Rules: Can They Stabilize the Economy?
By Todd E. Clark
As the monetary aggregates have become less reliable guides for monetary
policy, considerable interest has developed in identifying some other fundamental guide
for policy. Many analysts argue that the best guide might be nominal gross domestic
product (GDP). Some of these analysts also argue the Federal Reserve should target nominal
GDP using one of several possible rules. Such a rule would specify how the Federal Reserve
should adjust policy to affect a short-term interest rate in response to deviations of
nominal GDP from target.
Clark examines the performance of nominal GDP targeting rules using
statistical simulations of the economy. First, he reviews the argument that policymakers
should target nominal GDP using a rule. Second, he describes some alternative targeting
rules. Finally, he shows how these rules would perform based on simulation analysis of
models of the U.S. economy. He concludes that policymakers cannot be certain that a simple
nominal GDP targeting rule would improve economic performance.
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Does Inflation Uncertainty
Increase with Inflation?
By John E. Golob
One of the most important costs of inflation is the uncertainty it
creates about future inflation. This uncertainty clouds the decisionmaking of consumers
and businesses and reduces economic well-being. Without this uncertainty, consumers and
businesses could better plan for the future. According to many analysts, uncertainty about
future inflation rises as inflation rises. As a result, these analysts argue that the
Federal Reserve could reduce inflation uncertainty by reducing inflation. Other analysts
argue that high inflation creates no more uncertainty than low inflation, as long as
inflation remains stable. As a result, these analysts argue that high inflation does not
necessarily interfere with decisionmaking or reduce economic well-being.
Golob reviews the results of previous research and presents new
empirical evidence finding that inflation uncertainty rises with inflation.
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A New Agricultural
Policy for a New World Market
By Alan Barkema and Mark Drabenstott
A new farm bill will be enacted in 1995, and the debate over it has
already begun. With farm bills being renewed just once every five years, the 1995 bill
provides a propitious opportunity to re-evaluate the current bill in light of fundamental
changes to the marketplace since the adoption of the 1990 bill. One of the most important
changes since then has been in the world food market. Selling successfully in world
markets is vital to U.S. agriculture because it produces far more food than domestic
consumers require. Thus, while the upcoming farm bill will spawn debate on many issues,
few will be more important than reconciling U.S. agricultural policy with a new world food
market.
Recent developments in the world food market reflect basic changes in
two key market features. The market for finished food products is much stronger than for
bulk commodities. And the food market has been growing more rapidly in Asia and North
America than in Europe. If these trends persist, will current farm policy be in step with
the world food market of the future? Barkema and Drabenstott examine the factors likely to
shape the world market and conclude that agricultural policy must be overhauled if U.S.
agriculture is to excel in tomorrow's marketplace.
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People on the Move: Trends
and Prospects in District Migration Flows
By Glenn H. Miller, Jr.
Since the early 1970s, the states of the Tenth Federal Reserve District have experienced
wide swings in economic activity and interstate migration. The swings in migration not
only reflect the region's economic performance but also have important consequences for
future economic activity.
Miller discusses recent trends and prospects for migration into and out of the district.
He reviews trends in net migration flows and shows how they correspond with swings in
district economic performance. Next, he examines the composition of migrant flows and
indicates that a significant brain drain occurred from much of the district in the late
1980s. Finally, he considers the migration outlook for the district.
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- The Tenth District's Expanding Service
Sector
By Tim R. Smith
The proliferation of service jobs in the nation has received much attention. While the
manufacturing sector has suffered substantial job losses during the current business
cycle, job growth in services has been brisk. Because the service sector comprises a
diverse collection of service industries, there is considerable confusion about what kinds
of jobs the service industries are creating and what factors will affect the outlook for
the service sector.
In the Tenth District, service industry jobs have grown even faster than in the nation. As
the service sector becomes a bigger share of the work force, its performance will
increasingly influence the outlook for the region's economy. The service sector already
employs more workers than any other economic sector in the district, yet little is known
about the individual industries that make up this sector. Smith explores the dimensions of
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The Rise of U.S. Exports to
East Asia and Latin America
By Timothy J. Schmidt
Exports have become an increasingly important source of revenue for both national and
regional firms in the United States. U.S. exports are rising rapidly, especially from the
Midwest. As a result, national and district firms must be ever more attentive to changes
in U.S. export markets. One such change is the rapid growth of U.S. export markets in the
developing nations of East Asia and Latin America.
Schmidt analyzes current trends in the geographic distribution of U.S. exports and
identifies the primary growth markets for U.S. exports in the years ahead. He suggests the
developing nations in East Asia and Latin America will soon rival today's industrialized
nations as the most important U.S. trading partners. This finding presents U.S. firms with
a significant challenge. To take advantage of these growing markets, U.S. firms must
establish new distribution networks, learn foreign regulations and customs, and train
sales personnel in these developing geographic regions. Because such tasks require
commitments of time and investment, firms must be able to forecast where the future demand
for U.S. exports will be concentrated.
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