News Release

CHICAGO - The latest issue of Economic Perspectives released recently by the Chicago Fed highlights research on the following topics:

• In the article, "The acceleration in U.S. total productivity after 1995: the role of information technology" (85KB), Chicago Fed Senior Economist John Fernald and Associate Economist Shanthi Ramnath conclude that industries that use, rather than sectors that produce, information technology account for the bulk of the acceleration in total factor productivity since 1995.
  
• State and local budget situation, particularly Seventh Federal Reserve District states of Illinois, Indiana, Iowa, Michigan, and Wisconsin reviewed by Chicago Fed Senior Economist Richard H. Mattoon in "The state of the state and local government sector: fiscal issues in the Seventh District" (78KB). Mattoon notes that these states have pursued different fiscal policies over the last decade and have relied on different tax structures to pay for government, yet all are facing significant budget shortfalls.
  
• In "Poor hand or poor play? The rise and fall of inflation in the U.S." (87KB), Chicago Fed senior economist Francois R. Velde reviews recent efforts to understand the high inflation of the 1970s. Was it bad luck (and have we been lucky since), or has monetary policy changed in an important way? Researchers have found much support for the view that policy has changed, but remain divided on the reasons for the change.
  
• Economic efficiency implications of the Basel II capital standards are provided in the article "Cyclical implications of the Basel II capital standards" (69KB). Chicago Fed Consultant Anil K Kashyap and Harvard University Economics Professor Jeremy C. Stein argue that the mapping from measures of loan risk to capital requirements should not be time-invariant, but rather should be allowed to vary with business cycle conditions. They also assess empirically that the degree of cyclicality in capital requirements might be induced by the current Basel II proposal can be substantial.

For the full text, see the First Quarter 2004 issue of Economic Perspectives.