EconSouth (Third Quarter 2000)

Research Notes & News highlights recently published research as well as other news from the Federal Reserve Bank of Atlanta. For complete text of summarized articles and publications, see the links below.

An international comparison of central bank forecasting

Forecasts, whether explicit or implicit, are at the heart of policy making. In a recent article examining forecasting for monetary policy, John C. Robertson contrasts the forecasting processes at three central banks — the Reserve Bank of New Zealand, the Bank of England and the U.S. Federal Reserve.

In the United States, policymakers consider confidential staff forecasts in policy discussions, but these do not necessarily represent the consensus forecasts of the policy committee. At the Bank of England, official published forecasts are the product of bank staff and the policy committee working closely together, and the forecasts therefore come much closer to representing the central view of the policymakers. A similar, but less formal, interaction takes place at the Reserve Bank of New Zealand, which on a regular basis publishes forecasts based on staff models under the name of the bank’s governor.

Robertson’s discussion pays particular attention to the differences and similarities among the core models used by staff at these institutions. His analysis suggests that there is considerable similarity across central banks in the basic mechanics of producing forecasts. However, the author observes differences in the emphasis given to model-based forecasts relative to judgmental forecasts and those based on expert opinion. Banks with mandated inflation objectives have tended to favor model-based approaches as part of a strategy of ensuring that policy decisions are consistent with their inflation objectives and are as transparent to the public as possible.

Economic Review
Second Quarter 2000

Are displaced workers now finished at age 40?

In recent years, the media has devoted considerable attention to the effects of downsizing and corporate restructuring on U.S. workers. Economists as well as the media have focused in particular on the plight of laid-off, or “displaced,” middle-aged workers. Because many displaced workers incur significant costs, the displacement rate and the effects of displacement on workers are of concern to policymakers.

The conventional wisdom that middle-aged workers face an increased risk of being displaced and increased difficulties after displacement is partially borne out in a recent article by Daniel Rodriguez and Madeline Zavodny. Displacement rates among middle-aged workers rose relative to younger workers during the 1990s recession, and the relative likelihood of displacement for middle-aged workers has not returned to the levels of the 1980s. Thus, workers in their 40s are relatively more likely to have been displaced in the 1990s than in the 1980s. However, the two postdisplacement outcomes examined in this article, reemployment and earnings losses, have not changed significantly over time for older workers relative to younger workers.

According to the authors, the data also suggest that much of the concern about displacement may soon begin to abate. Displacement rates during 1995–97 returned to levels similar to those during the 1980s expansion. Reemployment rates for workers displaced during 1995–97 were at their highest levels for all age groups since the mid-1980s, and the gap between pre- and post-displacement earnings has shrunk during the most recent period.

Economic Review
Second Quarter 2000


After rising slightly in April and May, the dollar turned downward in June versus the 15 major currencies tracked by the Atlanta Fed. While the dollar rose consistently against currencies in the Americas subindex during the three-month period, the European currencies had the strongest influence on both the dollar’s gains and decline. The dollar’s performance against currencies in the other subindexes was mixed.

Note: For more detailed, monthly updates and historical data on the dollar index, see the Atlanta Fed's World Wide Web site at

Reviewing the evidence on bank loan-loss accounting

The philosophy underlying a bank’s accounting for loan losses might have a material effect on the net income the firm reports to investors, which is a concern for securities regulators. A bank’s loan-loss accounting philosophy might also significantly affect its ability to absorb unexpected future losses, which is a concern for bank supervisors. For example, a bank that follows a conservative loan-loss philosophy (maintains a higher loan-loss allowance) may be better able to absorb unexpected losses but also may have more freedom to manage reported earnings. In a recent article, Larry D. Wall and Timothy W. Koch focus on the extent to which securities regulators and bank supervisors should be concerned about banks’ accounting.

The authors’ conclusion is that neither the bank supervisors’ nor the securities regulators’ concern is as serious as it may seem at first glance. Using currently available data, investors can and do form estimates of the “economically true” amount of banks’ loan-loss allowances, provisions, net income and equity capital. Strict adherence to Securities and Exchange Commission guidelines may improve the quality of the data, but the guidelines may not eliminate the benefit or reduce the cost of investors’ making their own estimates. However, bank supervisors have the authority to require banks to hold additional equity capital if the bank’s loan-loss allowance is judged inadequate to absorb future losses.

Economic Review
Second Quarter 2000

Atlanta Fed no longer publishes Southeastern Manufacturing Survey

On July 19, the Federal Reserve Bank of Atlanta announced that it will no longer publish the results of its monthly survey of Southeastern manufacturers. As a result, the summary of this survey that normally appears in this publication has been discontinued.

The Atlanta Fed cited two principal reasons for ceasing publication of its survey. First, the survey sample is no longer representative of the population of manufacturing firms in the Atlanta Fed’s district; this situation could lead to conclusions that might not fully reflect the state of the region’s manufacturing sector at a given time. In recent years the manufacturing sector in the Southeast has changed significantly as many traditional Southern industries have moved overseas and high-tech and automotive industries have moved into the region. This trend has intensified since the survey’s inception in 1992. The Atlanta Fed determined that it would require substantial resources to update and reconstitute the survey sample to make it more representative.

Second, the Atlanta Fed determined that the survey does not provide information, beyond what is available from other sources, that significantly contributes to a better understanding of the region’s manufacturing trends.

“For these reasons, we determined that it was a prudent time to cease publication of the survey and focus our efforts on other resources for monitoring manufacturing in our region, including other publicly available data sources and continuing conversations with our regional manufacturing contacts and our network of Federal Reserve Bank directors, who provide valuable anecdotal information,” said Robert Eisenbeis, senior vice president and research director at the Atlanta Fed.

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