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For immediate release: September 22, 2011

Eleventh District’s Response to Monetary Policy Stimulus, Underemployed Workers, Mexican Economy Focus of Dallas Fed’s Southwest Economy

DALLAS—The latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy features articles on the Eleventh Federal Reserve District’s response to monetary stimulus, underemployment and its long-term consequences, world population growth and the Mexican economy.

The Federal Reserve’s Eleventh District—Texas, northern Louisiana and southern New Mexico—has been more responsive to the Fed’s monetary stimulus than other regions, according to David Luttrell, senior economic analyst and coordinator of economic and financial analysis, and  Harvey Rosenblum, executive vice president and director of research, in “Breaking Out of Recession: Gauging the Texas Response to Fed Stimulus.”

Key factors behind the region’s favorable response to monetary policy stimulus were its relatively healthy and well-capitalized banks, the absence of a boom-and-bust cycle in housing and internationally competitive export industries, the authors say.

The authors say Federal Reserve policy moves stimulated economic growth through four pathways: the bank loan channel, securities market channel, asset price and wealth channel, and exchange-rate channel.

“Regional economic drivers have contributed to the functioning of the bank loan, asset price/wealth and exchange-rate channels of monetary policy,” they write.

Even in the absence of monetary and fiscal policy intervention, the region likely would have outperformed the nation during the recovery, Luttrell and Rosenblum note.

In “Underemployment Poses Long-Term Financial Risk to More Workers,” senior research economist and advisor Anil Kumar and economics writer/editor Michael Weiss find the number of underemployed and discouraged workers—those who have given up trying to find work—has risen during the recovery.

Underemployed workers with a college degree and older workers (55+) suffer the largest erosion of earnings and job quality, according to the authors.

A long-term implication of underemployment is that worker obsolescence may slow economic growth, as employers search for properly skilled individuals, Kumar and Weiss state.

In an “On The Record” conversation, Joseph Chamie, research director of the Center for Migration Studies, says world population growth is peaking, and many countries now face an aging population.

Declining populations present economic challenges for countries around the world, according to Chamie.

“There are few models of sustained economic growth without a growing population,” Chamie says. “If you have a population that’s either stable or declining, you may start going abroad seeking a larger market.”

In “Mexico Rides Global Recovery but Still Faces Hurdles,” Dallas Fed economists Jesus Cañas, Roberto Coronado and Robert W. Gilmer say forecasts for Mexico’s economy call for a slight pickup in the second half of 2011, even though the current U.S. slowdown is diminishing the country’s growth prospects.

Still, Mexico’s economy faces significant challenges in the short and long run, including the worst violence since the Mexican Revolution, the authors state.

“The central question is not if Mexico can expand, but whether it can do so fast enough to significantly improve living standards,” the authors write. “This can be accomplished by building on structural reforms principally aimed at reducing informality, promoting business competition and boosting public finances.”

Cañas is an associate economist, Coronado is a senior business economist and Gilmer is the vice president in charge of the Dallas Fed’s El Paso branch.

This issue’s “Spotlight” article focuses on innovations in the Mexican financial markets, including new capital instruments such as trust securities, known as CKDs, and real estate investment trusts.

“Although Mexico’s capital markets remain small and relatively vulnerable, recent developments herald a deeper and more vibrant role for finance in the country’s economic development,” the article states.


Media contact:
Alexander Johnson
Phone: (214) 922-5288