May/June 2006

In This Edition

  • Inflation Targeting

    This article was originally presented as a speech to Junior Achievement of Arkansas, Inc., Little Rock, Arkansas, February 16, 2006.

  • The 1990s Acceleration in Labor Productivity: Causes and Measurement

    The acceleration of labor productivity growth that began during the mid-1990s is the defining economic event of the past decade. A consensus has arisen among economists that the acceleration was caused by technological innovations that decreased the quality-adjusted prices of semiconductors and related information-communications technology (ICT) products, including digital computers. In sharp contrast to the previous 20 years, services-producing sectors"”heavy users of ICT products"”led the productivity increase, besting even a robust manufacturing sector. In this article, the authors survey the performance of the services-producing and goods-producing sectors and examine revisions to aggregate labor productivity data of the type commonly discussed by policymakers. The revisions, at times, were large enough to reverse preliminary conclusions regarding productivity growth slowdowns and accelerations. The unanticipated acceleration in the services sector and the large size of revisions to aggregate data combine to shed light on why economists were slow to recognize the productivity acceleration.

  • The Geography, Economics, and Politics of Lottery Adoption

    Since New Hampshire introduced the first modern state-sponsored lottery in 1964, forty-one other states plus the District of Columbia have adopted lotteries. Lottery ticket sales in the United States topped billion in 2004, with state governments reaping nearly billion in net lottery revenue. In this paper the authors attempt to answer the question of why some states have adopted lotteries and others have not. First they establish a framework for analyzing the determination of public policies that highlights the roles of individual voters, interest groups, and politicians within a state as well as the influence of policies in neighboring states. The authors then introduce some general explanations for the adoption of a new tax that stress the role of economic development, fiscal health, election cycles, political parties, and geography. Next, because the lottery adoption decision is more than simply a tax decision, a number of factors specific to this decision are identified. State income, lottery adoption by neighboring states, the timing of elections, and the role of organized interest groups, especially the opposition of certain religious organizations, are significant factors explaining lottery adoption.

  • The Learnability Criterion and Monetary Policy

    Expectations of the future play a large role in macroeconomics. The rational expectations assumption which is commonly used in the literature provides an important benchmark, but may be too strong for some applications. This paper reviews some recent research that has emphasized methods for analyzing models of learning, in which expectations are not initially rational but which may become rational eventually provided certain conditions are met. Many of the applications are in the context of popular models of monetary policy. The goal of the paper is to provide a largely non-technical survey of some, but not all, of this work and to point out connections to some related research.

Central Banker logo


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.

Subscription Options

Additional Fed Publications

Fed in Print: An index of the economic research conducted by the Fed.