March/April 2005

In This Edition

  • Communication, Transparency, Accountability: Monetary Policy in the Twenty-First Century

    This article is a revised English translation of the Thünen Lecture, given at the Annual Congress of the Verein für Socialpolitik, September 29, 2004, in Dresden, Germany.

  • Does Consumer Sentiment Predict Regional Consumption?

    This paper tests the ability of consumer sentiment to predict retail spending at the state level. The results here suggest that, although there is a significant relationship between consumer sentiment measures and retail sales growth in several states, consumer sentiment exhibits only modest predictive power for future changes in retail spending. Measures of consumer sentiment, however, contain additional explanatory power beyond the information available in other indicators. By restricting attention to fluctuations in retail sales that occur at the business cycle frequency, the authors uncover a significant relationship between consumer sentiment and retail sales growth in many additional states. In light of these results, the authors conclude that the practical value of sentiment indices to forecast consumer spending at the state level is, at best, limited.

  • GSE Risks

    This article was originally presented as a speech to the St. Louis Society of Financial Analysts, St. Louis, Missouri, January 13, 2005.

  • Social Security versus Private Retirement Accounts: A Historical Analysis

    This paper compares Social Security benefits relative to those paid from private investments: specifically, whether 2003 retirees would gain more retirement income if they had invested their payroll taxes in private accounts during their working years. Three different retirement ages and four possible earnings levels are considered for two private investments—6-month CDs or the S&P 500. On average, the results suggest less than 5 percent of current retirees would receive a higher monthly benefit with Social Security. Several Social Security reform proposals are described.

  • The FOMC: Preferences, Voting, and Consensus

    In this paper, the author develops and uses an original dataset collected from the internal discussion of the Federal Reserve's monetary policy committee (the Federal Open Market Committee [FOMC] transcripts) to examine questions about the Committee's behavior. The data show that Chairman Alan Greenspan's proposals, after Committee discussion, were nearly always adopted unmodified in the formal vote. Despite the external appearance of consensus with little disagreement over decisions and an official dissent rate of 7.5 percent, the data reveal that the rate of disagreement in internal Committee discussions was quite high—on the order of 30 percent for discussions of the short-term interest rate. And, under the assumption that FOMC voters assigned a higher priority to their preferences for the short-term interest rate than for the bias in the policy directive, it can be shown that this bias was important for achieving consensus, which supports and extends the results of Thornton and Wheelock (2000). Thus, the novel dataset described in this paper helps to shed some light on the internal workings of the FOMC in the Greenspan years.



Keep up with what’s new and noteworthy at the St. Louis Fed. Sign up now to have this free monthly e-newsletter emailed to you.