November

Open Market Operations in the 1990s Cheryl L. Edwards Open market operations--the purchase and sale of Treasury and federal agency securities--are the Federal Reserve's principal tool for implementing monetary policy. The objectives and conduct of open market operations have continued to evolve in the 1990s, partly in response to the way the Federal Open Market Committee implements monetary policy and explains it to the public. Also shaping operations have been changes in financial markets, including developments in the market for repurchase agreements and declines in the balances that depository institutions must hold at the Federal Reserve. Full text (102 KB PDF)

October

Evaluating International Economic Policy with the Federal Reserve's Global Model Andrew Levin, John Rogers, and Ralph Tryon FRB/Global is a large-scale macroeconomic model developed and maintained by the Board's staff. This article provides a historical perspective on the development of the model, gives an overview of its structure, and highlights its dynamic properties with three simulation experiments: a reduction in U.S. government purchases; a depreciation of the U.S. dollar; and an increase in the price of oil exported by OPEC. The article illustrates other uses of FRB/Global by examining the spillover effects of fiscal and monetary policy under alternative European monetary policy regimes. Full text (125 KB PDF)

September

Changes in the Distribution of Banking Offices Robert B. Avery, Raphael W. Bostic, Paul S. Calem, and Glenn B. Canner The past twenty years have been marked by major structural and regulatory changes in the banking industry. This article explores the relationships between these changes and the distribution of "brick and mortar" banking offices between 1975 and 1995. The analysis explores how population shifts, deregulation, and mergers, acquisitions, and failures may have influenced changes in the number and location of banking offices. Special attention is given to changes in banking office distributions across neighborhoods grouped by the median income of their residents and their central city, suburban, or rural location. Full text (134 KB PDF) Treasury and Federal Reserve Foreign Exchange Operations During the second quarter of 1997, the dollar depreciated 7.3 percent against the Japanese yen but gained 4.2 percent against the German mark. On a trade-weighted basis against other Group of Ten currencies, the dollar appreciated 1.0 percent. The U.S. monetary authorities did not undertake any intervention operations in the foreign exchange market during the quarter. Full text (71 KB PDF)

August

Monetary Policy Report to the Congress The economy continued to perform exceptionally well in the first half of 1997. Real output grew briskly, while inflation ebbed. Sizable further increases in payrolls pushed the unemployment rate below 5 percent for the first time in nearly twenty-five years. Although growth in real gross domestic product appears to have slowed in the spring, this slackening came on the heels of a dramatic surge in the opening months of the year; all indications are that the expansion remains well intact. The members of the Board of Governors and the Reserve Bank presidents anticipate that the economy will grow at a moderate pace in the second half of this year and in 1998 and that inflation will remain low. Conditions in financial markets are supportive of continued growth: Longer-term interest rates are in the lower portion of the range observed in this decade, the stock market has registered all-time highs, and credit remains readily available to private borrowers. Full text (98 KB PDF)

July

Survey of Finance Companies, 1996 James D. August, Michael R. Grupe, Charles Luckett, and Samuel M. Slowinski Finance companies are major suppliers of credit to consumers and businesses. The sector is made up of roughly 1,250 nondepository financial institutions, with 20 firms accounting for three-fourths of the receivables. The Federal Reserve System has been surveying the assets and liabilities of finance companies, typically at five-year intervals, since June 1955. This article summarizes the results of the 1996 survey. Special features of that survey are a breakdown of automobile leases into consumer and business components and, relative to previous surveys, greater detail on the composition of real estate credit and more information on securitized loans and leases. Full text (79 KB PDF) The Issuance of Series-1996 $100 Federal Reserve Notes: Goals, Strategy, and Likely Results Theodore E. Allison and Rosanna S. Pianalto In March 1996, the Federal Reserve began issuing series-1996 $100 Federal Reserve notes. Culminating a cooperative effort by the U.S. Department of the Treasury and the Federal Reserve System that dated from the 1980s, the series-1996 note was the first major design change in U.S. currency in sixty-six years. The new note was developed to provide better protection for users of U.S. currency against the growing threat of counterfeiting, especially that posed by increasingly affordable and capable color scanning and printing systems. This article discusses the Federal Reserve's strategy for issuing newly designed $100 notes and says that it appears likely to achieve its objectives: a replacement of pre-series-1996 $100 notes that is timely in relation to the developing threat of counterfeiting, with a minimum impact on holders and users of those notes throughout the world. Full text (48 KB PDF) Open Market Operations during 1996 During 1996, the Trading Desk at the Federal Reserve Bank of New York managed reserve conditions with the objective of maintaining the federal funds rate around the level desired by the Federal Open Market Committee (FOMC). As was the case last year, the need for permanent reserve additions was relatively modest as demand for currency grew moderately and reserve requirements declined because of the continued spread of sweep programs at commercial banks. The decrease in operating balances of depository institutions at Reserve Banks had an impact on bank reserve management strategies and the Desk's choice of operations. The Desk paid close attention to the daily pattern of reserve demands and, by tailoring its operations accordingly, maintained funds trading close to the FOMC's desired rate. Full text (55 KB PDF)

June

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1996 William R. Nelson and Ann L. Owen U.S. commercial banks had another very good year in 1996. Profits posted strong growth, preserving the high levels of return on equity and return on assets that have prevailed over the past four years. Helping to boost profits were continued strong growth of interest-earning assets, a slight widening of the net interest margin, significant gains in noninterest income, and continued containment of noninterest expenses. Return on assets edged up despite a slight increase in provisioning for loan and lease losses relative to assets. Delinquency and charge-off rates stayed low for business loans but climbed throughout the year for consumer loans. Full text (199 KB PDF) U.S. Treasury and Federal Reserve Foreign Exchange Operations During the first quarter of 1997, the dollar appreciated 8.8 percent against the mark and 6.9 percent against the yen, at one point reaching thirty-six-month and fifty-month highs of DM 1.7209 and Y124.82 respectively. On a trade-weighted basis against other Group of Ten currencies, the dollar strengthened 7.5 percent. Full text (57 KB PDF)

May

U.S. International Transactions in 1996 Guy V. G. Stevens After stabilizing in 1995, the U.S. current account deficit widened in 1996 to $165 billion. The deficit increased sharply in the first three quarters of the year, but, because of strong export growth, narrowed significantly in the fourth quarter. The widening of the deficit by $17 billion was the net result of moderate-to-strong growth in all the key components of the current account: exports and imports of goods and services, income from U.S. and foreign portfolio and direct investments, and net unilateral transfers. Full text (97 KB PDF)

April

The Role of Expectations in the FRB/US Macroeconomic Model Fllint Brayton, Eileen Mauskopf, David Reifschneider, Peter Tinsley, and John Williams In the past year, the staff of the Board of Governors of the Federal Reserve System began using a new macroeconomic model of the U.S. economy referred to as the FRB/US model. This system of mathematical equations, describing interactions among economic measures such as inflation, interest rates, and gross domestic product, is one of the tools used in economic forecasting and the analysis of macroeconomic policy issues at the Board. The FRB/US model replaces the MPS model, which, with periodic revisions, had been used at the Federal Reserve Board since the early 1970s. A key feature of the new model is that expectations of future economic conditions are explicit in many of its equations. Because of this clear delineation of expectations, the FRB/US model can be used to study issues that would be difficult or impossible to study with the MPS model. For example, the new model can show how the economy's response to specific events, such as a reduction in defense spending, may vary considerably with the speed at which the public recognizes that the event has occurred or will occur. Full text (146 KB PDF)

March

Monetary Policy Report to the Congress The economy performed impressively this past year, and members of the Board of Governors and Reserve Bank presidents anticipate that 1997 will bring further appreciable economic expansion with relatively low inflation. In 1996, solid advances in the real expenditures of households and businesses led to sizable gains in output. Employment rose briskly, and the unemployment rate edged down to its lowest level of the current expansion. Consumer price inflation increased owing to the likely temporary effects of firmness in food and energy markets, but some broader price measures showed inflation holding steady or even declining. With the economy strengthening, intermediate- and long-term interest rates rose on net, but credit continued to be amply available to businesses and most households, and equity prices soared. Full text (97 KB PDF) Treasury and Federal Reserve Foreign Exchange Operations During the fourth quarter of 1996, the dollar appreciated 3.9 percent against the yen and 0.9 percent against the mark. On a trade-weighted basis against the currencies of the other Group of Ten countries, the dollar appreciated 0.2 percent. The U.S. monetary authorities did not undertake any intervention operations during the quarter. Full text (55 KB PDF)

February

Industrial Production and Capacity Utilization: Historical Revision and Recent Developments Carol Corrado, Charles Gilbert, and Richard Raddock The Board of Governors of the Federal Reserve System has completed a revision of its measures of output, capacity, and capacity utilization for the industrial sector. The primary feature of the revision is a new formulation for aggregating the indexes and utilization rates based on weights that are updated annually rather than every five years. The new formulation has been used to revise the output, capacity, and utilization rates back to 1977. It provides more accurate current estimates of developments in industrial production and capacity utilization and eliminates an earlier, small overstatement of the growth trends of production and capacity.       The revised indexes of industrial production and capacity show slower growth, on average, than the earlier estimates while the cyclical patterns of the revised measures are practically the same as before. Both from 1977 to 1987 and from 1987 to 1996, total industrial output grew at an average pace of about 2.3 percent a year--about 1/4 percentage point less than previously estimated. The growth of industrial capacity was revised down nearly as much; consequently, the rate of total industrial capacity utilization was revised down only a fraction of a percentage point at the end of 1996. (Statistical Release G.17, "Industrial Production and Capacity Utilization.") Full text (212 KB PDF)

January

Family Finances in the U.S.: Recent Evidence from the Survey of Consumer Finances Arthur B. Kennickell, Martha Starr-McCluer, and Annika E. Sunden Using data that have just become available from the 1995 Survey of Consumer Finances along with data from the 1989 and 1992 versions of the survey, this article provides a detailed picture of recent changes in the income, net worth, assets, and liabilities of U.S. families. It also presents information on families' saving, unrealized capital gains, debt payments, and institutional providers of credit. Of the developments the article reports, a few are particularly noteworthy. First, between the 1992 and 1995 surveys, both median family income and median family net worth rose in constant dollars. The former, however, remained below the level measured in 1989, whereas the latter returned to the 1989 level. Second, the percentage of families who owned publicly traded stock and the amount of their holdings expanded greatly over the six-year period. Finally, there was little evidence of a serious rise in debt payment problems between 1992 and 1995, even though both the share of families with debt and the median amount of their debt rose. (Occasional Staff Studies, "1995 Survey of Consumer Finances," OSS-2.) Full text (138 KB PDF)

Articles from the Federal Reserve Bulletin