A list of articles published by members of the Dallas Fed Research staff.

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2001 Academic Publications

Restaurant Prices and the Mexican Peso
Southern Economic Journal, July 2001
Roberto Coronado and Thomas M. Fullerton, Jr.
Abstract: Of prime interest to border economies is exchange rate performance and currency valuation. Commonly used tools for this task include purchasing power parity (PPP) nominal benchmarks, and inflation-adjusted trade-weighted indices. The latter have the advantage of relying on commonly available international macroeconomic data but overlook microeconomic information that may offer additional insight to issues surrounding exchange rate policy debates. Other efforts have utilized small samples of international product price comparisons to shed light on currency valuation questions. This paper develops one such tool by repeated sampling of prices charged for identical menu items sold at restaurant franchises in El Paso, Texas, and Ciudad Juarez, Chihuahua. A battery of statistical tests indicate that the international currency value of the peso consistently differed from the exchange rate implied by the border region restaurant price ratios in 1997, 1998, and 1999.

The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy
Journal of Macroeconomics, Winter 2001
John V. Duca and David D. Van Hoose
Abstract: This paper shows how heterogeneity in wage setting and a link between nominal wage flexibility and goods-market competition arise in a multisector economy that is affected by aggregate and sector-specific shocks. Aggregate volatility increases the variance of real contract wages, whereas sectoral volatility increases the relative variance of real Walrasian wages. Given this trade-off, the prevalence of nominal wage contracting reflects both the relative volatility of aggregate versus sectoral disturbances and the overall degree of goods-market market competition. We find that these variables help explain the decline in unionization (a proxy for contracting) in the United States.

Reengineering Social Security in the New Economy
Cato Institute Social Security Paper No. 22, Jan. 2001
Thomas F. Seims
Abstract: The United States is currently undergoing profound social, demographic, and economic changes, shifting from an industrial base to a new information economy, at the same time that life expectancies are increasing and the baby-boom generation is nearing retirement. Given these changes, it is more important than ever to reengineer Social Security, adapting it to this new reality.

Specifically, the current pay-as-you-go (PAYGO) Social Security system is structurally flawed and produces a declining rate of return that is far lower than the return that workers could earn through investing their taxes in private capital markets. Indeed, young workers can expect future returns from Social Security of from only 0.58 percent (for high-wage earners) to 2.93 percent (for low-wage workers) even if the system somehow manages to pay all future benefits without an increase in taxes. The tax increases or benefit cuts necessary to keep the system solvent would reduce those rates of return still further. In contrast, workers who privately invested their payroll taxes could expect rates of return, and retirement benefits, between four and ten times greater.

If Social Security is to provide the same retirement security in the new economy as it did in the old, we must transform it from a PAYGO system, which essentially transfers wealth from one generation to another, to a system based on savings and investment in private capital markets. Given the dangers of allowing the government to control the investment of Social Security funds, the only viable alternative is to move to a system of individually owned, privately invested accounts.

The Capital Markets' Perspective on B2B E-Commerce Initiatives and Alliances
Journal of Financial Transformation
Thomas F. Siems and Andrew H. Chen
Abstract: In the business-to-business (B2B) sector, new electronic commerce (e-commerce) initiatives like Internet-enabled supply chains and electronic marketplaces (e-marketplaces) offer firms significantly lower procurement costs, increased operating efficiencies, and expanded market opportunities. Using an event-study methodology, we find that the capital markets respond favorably to firms announcing new B2B e-commerce initiatives and alliances. For B2B e-marketplaces, we find slightly higher, though statistically insignificant, average abnormal returns associated with vertical markets than with horizontal markets. When examining the data by the type of partner the e-commerce provider aligns with, we find that the capital markets reward firms the greatest when they form alliances with a competitor or a computer industry giant. The abnormal returns associated with these announcements are on average more than three times greater than returns from announcing a B2B e-commerce initiative alone or with Old Economy industry leaders.

Comment on Stabilization Policy and the Costs of Dollarization
Journal of Money, Credit, and Banking, May 2001
Carlos E. J. M. Zarazaga
Abstract: Comments on the article "Stabilization Policy and the Costs of Dollarization," by Stephanie Schmitt-Grohe and Martin Uribe, published in the May 2001 Part 2 edition of the Journal of Money, Credit and Banking. Welfare cost invariance property of the model used in the article; reasons for the large devaluation rate prescribed by the model used in the article.

Evidencia Respecto de la Valoración del Peso Mexicano en la Región Fronteriza
Investigación Económica
Roberto Coronado and Thomas M. Fullerton, Jr.
Abstract: El desempeño del tipo de cambio y la valoración de la moneda son de interés primordial para las economías fronterizas. Las herramientas normalmente utilizadas para esta tarea incluyen las referencias nominales de la paridad del poder de compra y los índices de inflación ajustados por ponderaciones de comercio. Este último tiene la ventaja de contar con los datos macroeconómicos internacionales normalmente disponibles, pero omite otra información que puede ofrecer una visión adicional a los problemas circundantes de los debates de la política de tipo de cambio. Otros esfuerzos han utilizado muestras pequeñas de comparación internacional de los precios de los productos para remarcar las cuestiones sobre la valoración de la moneda. Este artículo desarrolla tal herramienta por medio de repetidas muestras de precios cobrados por artículos idénticos del menú vendidos en franquicias de restaurantes en El Paso, Texas y Ciudad Juárez, Chihuahua. Un conjunto de pruebas estadísticas indican que el peso ha sido consistentemente devaluado en 1997, 1998 y 1999.