The outlook for housing: the role of demographic and cyclical factors

With the current U.S. economic expansion now in its sixth year, the economy appears to be on a path of stable growth. Such a development would be beneficial because it would foster steady gains in employment, income, and investment, all of which would help boost the overall standard of living. To maintain such a healthy course, most sectors of the economy need to be solid performers. The housing sector is an especially important component of the economy, having generated $1.5 trillion in output in 1995, or one-fifth of the nation's gross domestic product.> Whether housing activity will continue to perform well in the 1990s will depend in part on two key factors. First, will demographic factors, such as the aging "baby-boom" generation and the smaller "baby-bust" generation, lessen the demand for housing and thereby imperil the health of housing activity? And second, will cyclical factors enable housing activity to sustain its solid performance as the economy moderates to a stable growth path?> Filardo explores whether housing will continue to perform well in the rest of the decade. He concludes that favorable demographic trends and stable cyclical forces will lay the foundation for healthy housing activity for the rest of the decade.Demography ; Housing ; Population

How reliable are recession prediction models?

The U.S. economy continues to advance briskly, defying forecasts of more moderate growth. Beginning in March 1991, the current expansion has become the longest peacetime expansion on record and is less than a year away from becoming the longest in U.S. history. To the surprise of some observers, economic growth has been particularly robust late in the expansion. In fact, over the last three years growth has averaged 4 percent annually, and indicators of growth for the first half of 1999 show no signs of significant slowing.> Despite these positive signs, few analysts believe the expansion can go on forever. As the expansion continues to age, economists will increasingly be called on to predict the next recession. Recession prediction models may help them gauge the likelihood of imminent recession.> Filardo examines the reliability of five popular recession prediction models. He concludes that these models have demonstrated some ability in the past to predict recessions. When judiciously interpreted, the models can help resolve uncertainty about the possibility of future recession.Recessions ; Forecasting

New evidence on the output cost of fighting inflation

The Federal Reserve has made significant progress toward price stability over the last two decades. The annual inflation rate has declined from 13 percent in the early 1980s to roughly 2 percent today. But, to be sure, the current low-inflation environment has come at a price.> One key cost of achieving low inflation is the output loss that generally accompanies a permanent decline in inflation, as occurred in the early 1980s and early 1990s. Another more subtle output cost of fighting inflation is the cost of preventing inflation from rising. As incipient inflation pressures build, tighter monetary policy can slow the economy and thereby preemptively forestall the rise in actual inflation. The slower output growth is the cost of resisting inflation pressures. Together, these two output costs of fighting inflation play important roles in determining how best to maintain low inflation and how to seek further disinflation toward price stability.> A significant factor determining the output cost of fighting inflation is the tradeoff between inflation and output, often referred to as the Phillips curve. Traditionally, estimates of this relationship assume the shape of this curve is linear. This implies that the slope of the Phillips curve is a constant and, therefore, independent of the stage of the business cycle, the speed of the disinflation, and how aggressively incipient inflation pressures are fought. Recent research, however, has begun to question whether the slope is constant. Assessing the output cost of fighting inflation may be more complicated than traditionally assumed.> Filardo investigates the shape of the Phillips curve and the associated output cost of fighting inflation. He concludes that, while the Phillips curve traditionally has been thought of as approximately linear, closer examination of the inflation-output relationship reveals important nonlinearities. This new evidence and its implications for the output cost of fighting inflation may require new policy strategies.Inflation (Finance) ; Phillips curve

Recent evidence on the muted inventory cycle

Inventories play an important role in business cycles. Inventory build-ups add momentum to the economy during expansions, while inventory liquidations sap economic strength during recessions. In addition, because inventory fluctuations are notoriously difficult to predict, they present considerable uncertainty in assessing the economic outlook.> The role of inventories in shaping the current outlook for the U.S. economy is particularly uncertain. In the early 1990s, inventory swings appeared less pronounced than usual, leading some analysts to conclude the business cycle might now be more muted. New inventory control practices, they believed, were permanently diminishing the role of inventories in the business cycle. Yet, recent strong inventory restocking suggests this conclusion might be premature. Inventories may be just as important in the business cycle today as in the past.> Filardo examines recent inventory data to assess whether the role of inventories in the business cycle has changed. He finds little evidence to suggest inventories are playing a reduced role in the business cycle, and therefore rejects the view that a change in inventory behavior has muted the business cycle.Business cycles ; Inventories

Monetary policy and asset prices

Despite the low inflation of recent years, some observers have wondered whether rapid gains in U.S. asset prices foreshadow rising inflationary pressures. Would U.S. monetary policy be improved if Federal Reserve policymakers reacted systematically to changes in the prices of widely held assets such as stocks and houses? Some monetary experts believe so. In particular, Charles Goodhart, a former member of the Bank of England's Monetary Policy Committee, argues that central banks should consider using housing prices, and perhaps, but to a much lesser extent, stock market prices to guide their policy decisions.> Goodhart has recommended that central banks replace conventional inflation measures--such as the CPI or PCE price index--with a broader measure that includes housing and stock market prices (weighted appropriately). This measure has the potential to improve macroeconomic performance if asset prices reliably predict future consumer price inflation. Other experts, however, question the ability of housing and stock prices to predict future inflation. And, even if asset prices help predict inflation, a central bank's reactions to such volatile asset prices might not necessarily improve macroeconomic performance.> Filardo evaluates the net benefits to the U.S. economy of adopting Goodhart's recommendation. First he reviews the historical and theoretical motivation underlying the recommendation and discusses its monetary policy implications. Next he examines empirically whether U.S. housing and stock market prices help predict future consumer price inflation. Based on these findings, he simulates a macroeconomic model to explore the net benefits of a policy that responds to these asset prices. He concludes that adopting Goodhart's recommendation would not improve U.S. economic performance.Prices ; Monetary policy

Has the productivity trend steepened in the 1990s?

In the 1990s, conventional measures of productivity growth, or the growth in output per worker, have indicated a dramatic rise. If these measures are correct, the economic benefits are clear. In the short run, sustained, faster productivity growth would enable the economy to expand more rapidly without intensifying inflationary pressures. In the long run, sustained, faster productivity growth would boost real incomes and improve the standard of living.> Despite signs that productivity has recently begun to follow a steeper path, some analysts are skeptical. Episodes of faster productivity growth in the past have often reflected cyclical influences rather than fundamental trend shifts. And, the conventional productivity measure, which is based on fixed-weighted productivity data, has recently shown an upward bias.> To address these concerns, Filardo reexamines the conventional, fixed-weighted productivity measure and also uses a new chain- weighted measure to assess productivity growth. He concludes that the productivity trend has not steepened in the 1990s.Productivity

Deflation and Monetary Policy in a Historical Perspective: Remembering the Past or Being Condemned to Repeat It?

What does the historical record tell us about how to conduct monetary policy in a deflationary environment? We present a broad cross-country historical study of deflation over the past two centuries in order to shed light on current policy challenges. We first review the theoretical literature on deflation. We then characterize deflation by distinguishing among the "good, the bad and the ugly" ones - considering both empirical determinants and historical narratives of each type. Emphasis is put on the linkages between the current inflation environment and that of the gold standard period. Particular attention is also put on what the historical record reveals about policies to escape undesirable deflation. In this regard we develop a policy typology based on the relative merits of interest rate and monetary instruments in combating different types of inflation/deflation behavior.

Penerapan Data Envelopment Analysis Dalam Pengukuran Efisiensi Retailer Produk Kendaraan Merek Toyota

Peningkatan penjualan mobil dari tahun ke tahun membuat semakin ketatnya persaingan bisnis sejenis pada sektor industri otomotif, sehingga dibutuhkan keefisiensian dalam menjalankan proses bisnis agar bisnis tersebut dapat terus berkompetisi di pasar. Tolak ukur efisiensi industri otomotif dalam menjalankan kegiatan bisnisnya dilihat dari seberapa besar suatu brand dapat mendominasi pangsa pasar yang ada. Akan tetapi, tolak ukur tersebut dinilai kurang efektif dikarenakan oleh capaian pangsa pasar yang diperoleh oleh suatu brand industri otomotif terlalu terfokus pada hasil akhir (output) tanpa memperhitungkan hasil usaha (input) didalam kegiatan bisnisnya. Sehingga, diperlukan suatu metode baru untuk mengukur efisiensi dari industri otomotif tersebut secara objektif. Penelitian sebelumnya juga membuktikan bahwa penggunaan market share sebagai acuan keefisiensian suatu industri otomotif dinilai kurang efektif, sehingga digunakan metode baru dalam menghitung efisiensi dari industri otomotif dengan menggunakan Data Envelopment Analysis (DEA). Penelitian ini bertujuan untuk menerapkan DEA tersebut dalam pengukuran efisiensi retailer produk kendaraan merek Toyota di Jawa Timur. Metode yang digunakan adalah Data Envelopment Analysis (DEA), dengan objek amatan penelitian ini adalah seluruh outlet AUTO2000 di Jawa Timur sebagai retailer dari produk kendaraan merek Toyota. Hasil yang didapat dari penelitian ini yaitu terindentifikasinya faktor-faktor yang terlibat dalam efisiensi AUTO2000 dan terlihat perbandingan keefisiensian antar DMU AUTO2000 di seluruh Jawa Timur. ====================================================================================== The increase in car sales from year to year makes similar businesses competition getting harder, especially in the Automotive industrial sector. Therefore, efficiency is required in order to keep the business stayed competitive in the market. Benchmark for the Automotive industry efficiency in running its business activities seen from how much a brand can dominate the market share there. However, the benchmark is considered less effective due to the attainment of market share obtained by a brand Automotive industry is too focused on the end result (output) without taking into account the results of operations (input) in its business activities. Thus, a new method is needed to measure the efficiency of the Automotive industry objectively. Previous research also proved that the use of market share as a benchmark efficiency in Automotive industries are considered less effective, so the new method is used to calculate the efficiency of the Automotive industry, and that method is Data Envelopment Analysis (DEA). This research aims to implement the DEA to measure the efficiency from product retailers of Toyota brand vehicles in East Java. Samples are AUTO2000 outlets in East Java as a retailer of Toyota brand vehicles products. The obtained results from this research are, those factors that involved in AUTO2000 efficiency were identified and the efficiency comparison between DMU AUTO2000 throughout East Java were shown