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Economic Review

Economic Review
C O N T E N T S
Third Quarter 2004/Volume 89, Number 3

Economic Review articles are posted on the Web as they become available. Page numbers in the PDF file posted here may not reflect the page numbers of the printed version.

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PRESIDENT
JACK GUYNN

SENIOR VICE PRESIDENT AND
DIRECTOR OF RESEARCH

ROBERT A. EISENBEIS

RESEARCH DEPARTMENT
THOMAS J. CUNNINGHAM
Vice President and
Associate Director of Research

GERALD P. DWYER JR.
Vice President, Financial

ELLIS W. TALLMAN
Vice President, Macropolicy

JOHN C. ROBERTSON
Assistant Vice President, Regional

PUBLIC AFFAIRS
BOBBIE H. MCCRACKIN
Vice President

LYNN H. FOLEY
Editor

TOM HEINTJES
Managing Editor

CAROLE L. STARKEY,
PETER HAMILTON, AND JILL DIBLE
Designers

ALISON BOUNDS
Marketing and Circulation

CHARLOTTE WESSELS
Administrative Assistance

The Economic Review of the Federal Reserve Bank of Atlanta, published quarterly, presents analysis of economic and financial topics relevant to Federal Reserve policy. In a format accessible to the nonspecialist, the publication reflects the work of the Research Department. It is edited, designed, produced, and distributed through the Public Affairs Department.

Views expressed in the Economic Review are not necessarily those of this Bank or of the Federal Reserve System.

Material may be reprinted or abstracted if the Review and author are credited. Please provide the Bank’s Public Affairs Department with a copy of any publication containing reprinted material.

Free subscriptions and limited additional copies are available from the Public Affairs Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470 (404/498-8020). Change-of-address notices and subscription cancellations should be sent directly to the Public Affairs Department. Please include the current mailing label as well as any new information.

ISSN 0732-1813

Monetary Explanations of the Great Depression: A Selective Survey of Empirical Evidence
Paul Evans, Iftekhar Hasan, and Ellis W. Tallman

Seventy years after the Great Depression, economists still debate the causes of this economic catastrophe. Two leading explanations are distinguished by whether or not the Federal Reserve’s monetary policies are perceived as being chiefly responsible for propagating and magnifying the initial contraction into a depression.

This article surveys recent modeling efforts and empirical work that examine aggregate explanations for the Great Depression from both the extensive literature using vector autoregression techniques and the more recent literature using dynamic stochastic general equilibrium modeling. Neither of these approaches has yielded a consensus about the causes of the depression.

Data alone are insufficient to distinguish the precise role of monetary policy during that period. The modeling strategies impose restrictions that help isolate the meaningful economic interactions in the data. In each literature, the ways in which the respective models identify monetary policy can differ substantially, and these differences are why monetary policy shocks may or may not explain much of the output contraction. Also, these modeling approaches vary in their ability to capture important institutional features of the banking and financial system.

The authors believe that the search for one conclusive empirical study of the Great Depression is futile. The most promising path for future research models, they conclude, will entail a sharper focus on the financial sector, a refined specification of how monetary policy affects the real economy, and further methods to incorporate elements of labor market frictions.


Growing Part-Time Employment among Workers with Disabilities: Marginalization or Opportunity?
Julie L. Hotchkiss

Even though part-time jobs offer lower pay, fewer benefits, and less stability, voluntary part-time employment among disabled workers has increased over the past twenty years even as part-time work has declined among nondisabled workers. Does this trend signal that part-time work has become more attractive to disabled workers, or does it mean that disabled workers are being pushed to the fringe in the workforce?

This article attempts to answer these questions by looking at the part-time employment experience of disabled workers since 1984. Using data from the Current Population Survey, the author first examines how the incidence and nature of part-time jobs among workers with disabilities have changed over time compared with the experiences of nondisabled workers. Second, she analyzes U.S. Labor Department job descriptions for a broad range of occupations to see how the qualitative nature of jobs has changed over time.

Her analysis indicates that disabled workers are not being marginalized and are finding part-time employment more attractive. One explanation for the latter finding is that employers are increasingly accommodating the needs of disabled workers, offering them part-time jobs that would be available only on a full-time basis to nondisabled workers. Since the data show that the quality of part-time jobs held by disabled workers has not become relatively more attractive, a second, more likely explanation is that policy changes such as extended Medicaid and more generous Social Security Disability Insurance benefits have made part-time employment more financially attractive to disabled workers.


Modeling the Term Structure of Interest Rates: An Introduction
Mark Fisher

The yield curve, or the term structure of interest rates, plays a central role in the economy. Monetary policy is conducted by targeting rates at the short end of the curve, and longer-term yields reflect expectations of future changes in short rates.

This article presents a model of the term structure that builds on a simpler model outlined in one of the author’s earlier Economic Review articles. The more complex model presented here takes into account the ongoing uncertainty about an asset’s price over time. The article focuses on modeling the dynamics of the state-price deflator, which depend directly on the interest rate and the price of risk.

The author guides the reader step by step in developing a model of the term structure in which the interest rate evolves randomly through time according to a simple rule, the price of risk is a fixed parameter, and observations are made at discrete points in time.

The solution to the model illustrates a number of important features present to one extent or another in essentially all term structure models. The contribution of this article is its exposition: An important feature is that the model keeps track of the length of the discrete time period, allowing one to see what happens as the time step shrinks. The model thus provides a bridge from discrete-time models to continuous-time models without requiring the technical overhead necessary for a direct continuous-time analysis.