From the Editor

The themes that emerge from this issue are consumers, monetary policy, inflation, and developing countries. In the first article, Ana Aizcorbe, Martha Starr, and James T. Hickman use household-level data to examine changes in behavior concerning automobile acquisition and financing—particularly the decision to buy or to lease—taking into account demographic and credit variables, used-car markets, and replacement demand. In the second consumer-oriented article, Robert Keyfitz illustrates the use of state-space analysis to examine the effect of non-economic exogenous shocks on consumer confidence. In the case of the invasion of Iraq, such non-economic influences dominated traditional economic variables in explaining volatility of consumer confidence.

Turning to monetary policy, William R. Emmons and Frank A. Schmid examine why manipulation of short-term interest rates may not always have the expected effect on fixed investment. They find that lower short-term interest rates not only shift the yield curve in favor of increased investment but also have a counter-tendency of increasing the value of waiting to invest. William T. Gavin examines why inflation-targeting has worked well as a monetary policy for macroeconomic stabilization. Reducing uncertainty about future inflation paths appears to be an effective way of institutionalizing low inflation while maintaining healthy growth.

Michael LeBlanc and Menzie D. Chinn are concerned about inflation, also. In their case, their concern is the extent to which volatility in oil prices influence inflation in the United States, the United Kingdom, France, Germany, and Japan. Using an augmented Phillips-curve analysis and allowing for asymmetric and non-linear effects, they find that oil prices may not have as important an impact as is often believed.

Turning to developing countries, Mina Baliamoune- Lutz examines the effect of foreign direct investment (FDI) on their economic growth. Using Morocco as an illustration, she shows that FDI is a cause rather than a consequence of economic growth and opines that it also contributes to political stability. Being able to illustrate the benefits of FDI in the face of host-country skepticism may enhance the bargaining position of would-be investors. Hossein Askari, in the Forum on Emerging Issues, looks at governance arrangements in the International Monetary Fund and the World Bank Group. He finds that it is necessary to revise post World War II formulas for representation in order to give developing countries a greater role in the decision-making of these institutions. If this is not done, there is a risk that developing countries will begin to disengage from global integration, thereby impairing the effectiveness of these institutions and their ability to foster global economic growth.

In Focus on Statistics, Robert P. Parker reviews data from the Census Bureau, Bureau of Labor Statistics, and Bureau of Economic Analysis that have appeared or will be appearing for the first time in 2004, plus data that were released for the first time in 2003. Among these are data on time use of individuals, domestic and offshore outsourcing, and more comprehensive data on exports and imports of services.

In Economics at Work, Kurt Karl describes his work as head of the Economic Research and Consulting Group of Swiss Reinsurance. He provides a description of the reinsurance industry and how his group’s efforts contribute value-added, both internally and externally. Products include publications for internal and external clients, strategic analysis support for the executive board, and support of individual business groups. Focus on Industries and Markets does not appear in this issue. It will, however, return in July with an article on the turbine industry, a key player in the aircraft manufacturing and power generating industries.

Robert Thomas Crow
Editor