Challenges to the natural rate framework

By most estimates, the U.S. unemployment rate is currently below its "natural rate." The implication is the economy is operating at an unsustainably high level of resource utilization. Capacity levels are being strained, tending to put upward pressure on wages and prices. In anticipation of these rising inflationary pressures, the Federal Reserve has firmed monetary policy several times over the past year.> A majority of mainstream economists appear comfortable with the natural rate framework, in part because it has tracked inflation successfully over the past 35 years. Despite its excellent record, however, the natural rate framework has not been without critics. In the past year, nonbelievers have advanced a number of arguments for why mounting inflationary pressures should not be a concern at this time. These arguments have focused on the heightened globalization of the marketplace, the weak bargaining position of the labor force, widespread productivity gains, and the absence to date of an unambiguous rise in inflation.> In this article, adapted from presentations made to the National Economists Club and the Congressional Budget Office in February 1995, Weiner considers the arguments against the natural rate framework. He offers some counterarguments and concludes that concerns about future inflationary pressures are well founded.Inflation (Finance) ; Unemployment

The Federal Reserve's role in retail payments: adapting to a new environment

The U.S. retail payments system is in the midst of a transformation. The shift from paper to electronics, the emergence of new instruments and payments channels, the rise in nonbank participation, the change in risk profiles—all are elements of this new landscape. The Federal Reserve takes as one of its mandates fostering a payments system that is safe, efficient, and accessible. How does the Federal Reserve fulfill this mandate in this new environment? ; Since its beginning, the Federal Reserve has played a crucial role in the U.S. retail payments system. From time to time, that role has been reevaluated The current environment suggests the time may be right for another examination. Other central banks are facing similar issues. ; Weiner reexamines the Federal Reserve’s role in retail payments in light of the evolving payments system. The Federal Reserve will likely continue to play an important role in retail payments. However, given the evolution of the payments system, the role the Federal Reserve plays and the rationale for this role may be different than they have been in the past.

Electronic payments in the U.S. economy : an overview

Business publications are filled these days with stories about the digital or electronic economy. One routinely reads about e-commerce, e-business, and e-banking. Terms such as e-mail and e-tickets have entered the common lexicon. Some analysts have gone so far as to proclaim that the U.S. economy is being fundamentally transformed and is entering a "new age" of unparalleled growth and opportunity.> While such a view is open to debate, clearly some major, potentially far-ranging, changes are under way. The most visible and most dramatic involve e-commerce. A growing amount of economic activity is taking place on the Internet, directly or indirectly impacting households and businesses throughout the economy. Less visible, but also significant, are changes involving "e-payments." Although the U.S. payments system continues to rely heavily on paper-based methods, cash and checks, for conducting transactions, electronic payments are steadily gaining a greater presence.> Weiner provides an overview of e-payments as they currently exist in the United States. He shows that the U.S. payments system is becoming more electronic, principally through traditional means. While new instruments are beginning to emerge, it is the traditional e-payment types--credit cards, debit cards, and ACH transactions--that are driving the U.S. payments system forward.Payment systems

On vector configurations that can be realized in the cone of positive matrices

Let $v_1$,..., $v_n$ be $n$ vectors in an inner product space. Can we find a natural number $d$ and positive (semidefinite) complex matrices $A_1$,..., $A_n$ of size $d \times d$ such that ${\rm Tr}(A_kA_l)=$ for all $k,l=1,..., n$? For such matrices to exist, one must have $\geq 0$ for all $k,l=1,..., n$. We prove that if $n<5$ then this trivial necessary condition is also a sufficient one and find an appropriate example showing that from $n=5$ this is not so --- even if we allowed realizations by positive operators in a von Neumann algebra with a faithful normal tracial state. The fact that the first such example occurs at $n=5$ is similar to what one has in the well-investigated problem of positive factorization of positive (semidefinite) matrices. If the matrix $()$ has a positive factorization, then matrices $A_1$,..., $A_n$ as above exist. However, as we show by a large class of examples constructed with the help of the Clifford algebra, the converse implication is false.Comment: 8 page

Interchange fees in various countries: developments and determinants

Interchange fees and related issues in credit and debit card markets have been the focus of considerable attention in recent years. The academic community has begun to address the economics of these markets. Public officials have begun to address the policy implications of developments in these markets. Meanwhile, these markets continue to experience dynamic change as credit, and especially debit, transactions account for an ever-growing share of overall payments. This paper provides an overview of interchange fee developments and issues in a number of countries. It also presents a preliminary analysis of some possible contributing factors. The principal conclusion of the paper is that interchange arrangements vary considerably across countries, and while existing economic theory provides some insight into fee levels and movements, much remains to be explained. A number of complex and interrelated factors, many country-specific, play a role in interchange developments.Credit cards ; Debit cards

Interchange fees in various countries : developments and determinants

Debit cards ; Credit cards

Competition and credit and debit card interchange fees: a cross-country analysis

This paper seeks to provide a bridge between the theoretical and empirical literatures on interchange fees. Specifically, the paper confronts theory with practice by asking, to what extent do existing models of interchange fees match up with actual interchange fee practices in various countries? For each of four countries—Australia, the Netherlands, the UK, and the United States—models that “best” fit the competitive and institutional features of that country’s payment card market are identified, and the implications of those model are compared to actual practices. Along what competitive dimensions is there alignment? Along what competitive dimensions is there not alignment? What country-specific factors appear to be important in explaining deviations from theoretical predictions? The results suggest that a theory applicable in one country may not be applicable in another, and that similar interchange fee arrangements and regulations may well have different implications in different countries.Credit cards ; Debit cards ; Competition

Monetary policy without reserve requirements : case studies and options for the United States

Over the past decade, the level of required balances held by depository institutions in the United States has declined dramatically. The decline in reserve balances has fueled a debate over the role of reserve requirements. On the one hand, proponents of reserve requirements argue that low reserve balances may complicate monetary policy operations and increase short-term interest rate volatility. On the other hand, critics of reserve requirements argue that lower reserve requirements remove a distortionary tax on depository institutions and need not complicate monetary policy operations. ; In this article, the authors examine how three countries - Canada, the United Kingdom, and New Zealand conduct monetary policy without using reserve requirements. The experience of these three countries provides insight into the linkages between the payments system and monetary policy and into the connection between reserve requirements and interest rate volatility. This insight is particularly helpful in understanding the implications of a further reduction of reserve balances in the United States.Monetary policy ; Bank reserves ; Monetary policy - Canada ; Monetary policy - Great Britain ; Monetary policy - New Zealand