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141. Report on Indonesia

Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Indonesia is a country in major transition. After 40 years of authoritarian rule, a fledgling democratic system has yet fully to take root. The country's first post - authoritarian president, Abdurrahman Wahid, was impeached after two years by the parliament on the grounds of incompetence and replaced by Megawati Sukarnoputri in July 2001. The economy, imbued with corruption during the decades of state control, collapsed in 1997 and has yet to recover. Accustomed to playing a central political and economic role, the Indonesian military remains reluctant to accept civilian control and accountability for its actions. The discontent of the people of several regions with incorporation into the Indonesian state was met for decades with harsh military repression, leaving the essential issues unsolved and, in some cases, aggravated.
Topic:
Foreign Policy, Diplomacy, Human Rights, and Religion
Political Geography:
United States, Indonesia, and Southeast Asia

142. Report on Uzbekistan

Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The conditions for religious freedom are very poor in Uzbekistan. In addition to a highly restrictive law on religion that severely limits the ability of minority religions to function, the Uzbek government in recent years has been harshly cracking down on Muslim individuals, groups, and mosques that do not conform to government-prescribed ideas on how the Islamic faith should be practiced and expressed. This crackdown has resulted in the arrests of thousands of persons and there are credible reports that many have been and continue to be tortured in detention, torture that in some cases has led to the death of those detained. While the government of Uzbekistan does face threats to its security from certain religious groups that have used violence against it, the government's mass arrests of religious believers and reports of torture nevertheless suggest that gravely troubling religious freedom violations are occurring in that country. The Commission recognizes that Uzbekistan only recently gained independence and has not yet developed the institutions and level of civil society necessary for the full protection of human rights, including religious freedom. Nevertheless, this neither excuses nor fully explains the scale and harshness of the government's current campaign against religious freedom.
Topic:
Foreign Policy, Diplomacy, Human Rights, and Religion
Political Geography:
United States, Asia, and Uzbekistan

143. Equity Prices, Household Wealth, and Consumption Growth in Foreign Industrial Countries: Wealth Effects in the 1990s

Author:
Carol C. Bertaut
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Although most recent empirical research regarding the size and significance of the impact of changes in wealth on consumption has looked for such effects in the United States, equity prices in the 1990s rose considerably in most other industrial countries as well. This paper investigates the strength of the wealth effect across countries. Using a variety of methods, I find evidence of significant wealth effects in the United Kingdom and Canada of a size comparable to that in the United States, reflecting the importance of equities in aggregate household wealth in these countries. A significant wealth effect is also evident in Japan, but because household wealth has changed little on balance in Japan in recent years, this channel has been less important in explaining Japanese consumption growth in the second half of the 1990s. Despite a rapid appreciation in equity prices and an increase in equity ownership in the major continental European countries since 1995, equities remain a less important form of household wealth in most of these countries, and the consumption response to changes in wealth remains limited. However, in some smaller European countries where equity issuance is more common, the emerging evidence suggests that wealth effects may be more important.
Topic:
International Relations, Economics, Globalization, and International Trade and Finance
Political Geography:
United States, United Kingdom, Europe, and Canada

144. Financial Centers and the Geography of Capital Flows

Author:
Francis E. Warnock and Chad Cleaver
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We examine an assumption common in empirical work on bilateral portfolio capital flows that the countries the flows are attributed to are also the countries of the security's issuer, seller, or ultimate buyer. We do this by estimating U.S. investors' holdings of debt and equities in over 40 countries and, for the same countries, foreign investors' holdings of U.S. debt and equities. A comparison of our estimates with data from benchmark surveys provides insight into U.S. data on international debt and equity transactions. We find that, contrary to the common assumption, the data do not track the location of U.S. investment or the location of investors in U.S. assets very well. Because the U.S. portfolio flow data collection system was designed to measure cross-border transactions with foreign counterparties who are often intermediaries, the majority of the flows are attributed to financial centers. By aggregating our country-level estimates, we find that U.S. data accurately portray net inflows into U.S. equities and net outflows into foreign bonds. However, the data substantially overcount net inflows into U.S. bonds and may undercount net outflows into foreign equities. We conclude with a discussion of the implications of our findings for research on capital flows.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

145. Report on Sudan

Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In its first annual report issued May 2000, the U.S. Commission on International Religious Freedom (the Commission) found that the government of Sudan was the world's most violent abuser of the right to freedom of religion and belief. The Commission also found that religion was a major factor in the ongoing civil war, and that religion and religious–freedom violations were intertwined with other human rights and humanitarian abuses in Sudan. In the Commission's view, the Sudanese government was committing genocidal atrocities against civilian populations in the southern part of the country and in the Nuba Mountains. In light of these conditions, the Commission recommended, among other things, that the Clinton administration launch a comprehensive program of diplomatic and economic pressures to stop human rights abuses in Sudan. Moreover, the Commission was disturbed by the reported connection between oil development and the Sudanese government's abuses, as well as by an initial public offering in the U.S. by a subsidiary of one of the government's joint–venture partners in the development of Sudan's oil fields. Therefore, the Commission recommended that foreign companies engaged in the development of Sudan's oil and gas fields be prohibited from raising money in U.S. capital markets.
Topic:
Foreign Policy, Diplomacy, Human Rights, and Religion
Political Geography:
Africa, United States, Sudan, and North Africa

146. Report on the Democratic People's Republic of Korea

Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The people of the Democratic People's Republic of Korea (North Korea or DPRK) are perhaps the least free on earth, barely surviving under a totalitarian regime that denies basic human dignity and lets them starve while pursuing military might and weapons of mass destruction. By all accounts, there are no personal freedoms of any kind in North Korea, and no protection for human rights. Religious freedom does not exist, and what little religious activity that is permitted by the government is apparently staged for foreign visitors.
Topic:
Foreign Policy, Diplomacy, Human Rights, and Religion
Political Geography:
United States, Asia, North Korea, and Korea

147. Annual Industrial Capabilities Report to Congress, MAR 2002

Publication Date:
03-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Section 2504 of title 10, United States Code, requires that the Secretary of Defense submit an annual report to the Committee on Armed Services of the Senate and the Committee on Armed Services of the House of Representatives, by March 1st of each year. The report is to include:”(1) A description of the departmental guidance prepared pursuant to section 2506 of this title.(2) A description of the methods and analyses being undertaken by the Department of Defense alone or in cooperation with other Federal agencies, to identify and address concerns regarding technological and industrial capabilities of the national technology and industrial base.(3) A description of the assessments prepared pursuant to section 2505 of this title and other analyses used in developing the budget submission of the Department of Defense for the next fiscal year.(4) Identification of each program designed to sustain specific essential technological and industrial capabilities and processes of the national technology and industrial base.” This report contains the required information.
Topic:
Defense Policy, Economics, Industrial Policy, and Science and Technology
Political Geography:
United States

148. Regional Influences on U.S. Monetary Policy: Some Implications for Europe

Author:
Ellen E. Meade and D. Nathan Sheets
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper looks at the monetary policy decisions of the U.S. Federal Reserve and asks whether those decisions have been influenced solely by national concerns, or whether regional factors have played a role. All of the Federal Reserve's policymakers have some regional identity, i.e., either their positions explicitly carry some regional affiliation or their region of origin is a factor that must be considered in the selection process. This research is relevant for the Fed, and it may also be relevant for Europe's fledgling central bank in Frankfurt. Critics have asserted that ECB policymakers have an incentive to base policy on national developments and respond to national political pressures. We find that Fed policymakers do take into account developments in regional unemployment when deciding monetary policy, and that these regional developments are more important for central bankers at the hub than in the spokes. These findings are robust to a variety of different specifications of the voting equation.
Topic:
Economics and International Trade and Finance
Political Geography:
United States and Europe

149. Identifying VARs Based on High Frequency Futures Data

Author:
Jonathan H. Wright, Jon Faust, and Eric Swanson
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Using the prices of federal funds futures contracts, we measure the impact of the surprise component of Federal Reserve policy decisions on the expected future trajectory of interest rates. We show how this information can be used to identify the effects of a monetary policy shock in a standard monetary policy VAR. This constitutes an alternative approach to identification that is quite different, and, we would argue, more plausible, than the conventional short-run restrictions. We find that the usual recursive identification of the model is rejected, but we nevertheless agree with the literature's conclusion that only a small fraction of the variance of output can be attributed to monetary policy shocks.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
United States

150. Inflation Targeting and Nominal Income Growth Targeting: When and Why Are They Suboptimal?

Author:
Dale W. Henderson and Jinill Kim
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We derive optimal monetary stabilization rules and compare them to simple rules under both full and partial information. The nominal interest rate is the instrument of monetary policy. Special attention is devoted to inflation targeting and nominal-income-growth targeting. We use an optimizing-agent model of a closed economy which features monopolistic competition in both product and labor markets. A stabilization problem exists because there are one-period nominal contracts, either for wages alone or for both wages and prices, and three shocks that are unknown when contracts are signed. In order to highlight basic theoretical results, we deliberately keep our model simple enough that we can obtain exact solutions. Optimal rules maximize the expected utility of the representative agent subject to the information set of the policymaker. A key result, possibly surprising at first, is that even with monopolistic competition, the optimal full information policy makes the economy mimic the hypothetical equilibrium with flexible prices and wages. We explain why strict versions of inflation targeting, nominal income growth targeting, and other such simple rules are suboptimal under both full and partial information and derive flexible versions that are optimal under certain partial information assumptions. Nominal income growth targeting dominates inflation targeting for plausible parameter values.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
United States