Wednesday, February 17, 2010

Some Fed Publications of Interest

I've been waiting to post these and now seems to be as good a time as any. 

The first is a short piece from the Federal Reserve Bank of St. Louis's Economic Synopses. I find it a good, clear explanation of Okun's Law, the relationship between output and employment. This is particularly relevant as the economy begins to work its way out of the recession.

That brings us to the second publication, this time from the Federal Reserve Bank of San Francisco Economic Letter. It focuses on timing the beginning and end of recessions. It points out that the "two-quarter" rule that is commonly used in the media is inadequate, and suggests using indicators developed by the Federal Reserve Banks of Chicago and Philadelphia. While they don't coincide perfectly, both indicate the recession bottomed out in the summer of 2009 (Philadelphia calls June, Chicago calls August). The article may be of some value when discussing business cycles with your classes, especially for those of you involved in monetary policy competitions like The Fed Challenge.

And that provides a transition to the third article, also courtesy of the Federal Reserve Bank of San Francisco's Economic Letter. One thing many of us teach to our students is the Phillips Curve - a relationship between inflation and unemployment. Indeed, one of the items I frequently heard students in the Fed Challenge discuss was the Phillips Curve trade-off. And while many maintain the two are correlated, I still don't think there is evidence of a cause-effect relationship. This article doesn't change my mind, but provides more subtle explanation than many of us give it. Too subtle for our students? Perhaps for some. But not for all.

I welcome your comments on these articles.

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