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Assimilation of immigrants, interest rates, energy prices and the Venezuelan economy addressed in Dallas Fed publication

For immediate release: May 27, 2004

DALLAS—The latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy explores immigrant assimilation, current monetary policy, energy prices and the Venezuelan economy.

In “Immigrant Assimilation: Is the U.S. Still a Melting Pot?” Senior Economist Pia Orrenius finds that immigrant children outperform their parents when it comes to educational attainment and income levels, and children of non-Hispanic immigrants even outperform natives.

Hispanic immigrants, however, "while they make the biggest gains after coming to the United States, ... lag behind the national average in education and wage outcomes after several generations because they assimilate not to the national schooling average but to the Hispanic average," Orrenius writes.

Educational levels are becoming increasingly more important for workers seeking economic assimilation.

“Immigrants and their children thus face a knowledge-based economy, where human capital—more than ever before—drives wages and job opportunities,” she states.

Considering that 20 percent of today’s schoolchildren are the children of immigrants, this educational gap could have economic ramifications for the nation.

In the article, Orrenius provides policy alternatives available to address this issue.

In “Monetary Policy Prospects,” Vice President and Senior Economist Evan F. Koenig explains why short-term interest rates cannot be kept indefinitely at their current low level and discusses the considerations likely to influence the timing and magnitude of future rate increases.

Koenig points out that current monetary policy is highly accommodative by several measures and argues that this level of accommodation is not sustainable over the long term. The relevant question, therefore, isn’t whether interest rates will rise, but when they will begin to increase and by how much.

The timing and magnitude of future rate increases, Koenig demonstrates, is likely to depend on the amount of labor-market slack in the economy, how rapidly the economy is growing relative to potential and prospects for future inflation. Unfortunately, each of these variables is difficult to estimate with any confidence—until after the fact.

As Koenig notes, “Small differences in economic forecasts and assumptions ... produce strong differences of opinion about current policy and about how policy ought to evolve in the future.”

In “Do Energy Prices Threaten the Recovery?” Stephen P.A. Brown, director of energy economics and microeconomic policy analysis, finds that rising oil and natural gas prices will only create a mild drag on the nation’s economic growth.

The recent increase in oil prices is moderate compared with historical standards, and companies are better equipped to deal with prices shocks, he states.

“In an economy growing at about 3.5 to 4 percent annually, a one-time reduction [in GDP] of 0.9 percent that is spread out over two to three years won’t derail the recovery,” according to Brown.

Oil and gas prices are likely to remain higher than previously expected for the “foreseeable future,” he writes.

In “The ‘Curse’ of Venezuela,” Vice President and Senior Economist William Gruben and research assistant Sarah Darley argue that the widely held belief that Venezuela’s current economic weakness solely reflects political strife misses the point that it’s a two-way street: The nation’s recent conflicts, the authors write, are the political fallout from economic problems that have been steadily growing worse for over 20 years and date back more than half a century.

Oil-rich Venezuela’s slow economic growth is the result not only of governmental policies but also of a “resource curse,” according to Gruben and Darley. A resource curse is the concept that a nation’s overreliance on revenue from a single natural resource can hinder rather than aid economic growth.

“Very few resource-rich countries grow as fast as the average resource-poor country,” they write.

Gruben and Darley cite research that Venezuela’s economy would have grown faster during 1970–90 had it not been an oil-exporting country.

“The economic peculiarities of a natural-resource-based economy—in which not only price relationships but even educational incentives keep the country from moving in a more productive direction—result in a political system that perpetuates the economic system,” the authors write.

“The political system then feeds back into the resource-based economic focus.”

Find the May/June 2004 issue of Southwest Economy online at


Media contact:
James Hoard
Phone: (214) 922-5307