Front Matter

Front Matter Page

© 2002 International Monetary Fund

August 2002

IMF Country Report No. 02/165

United States: Selected Issues

This Selected Issues paper for the United States was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on July 12, 2002. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the United States or the Executive Board of the IMF.

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Front Matter Page

INTERNATIONAL MONETARY FUND

UNITED STATES OF AMERICA

Selected Issues

Prepared by C. Towe, P. De Masi, I. Ivaschenko, M. Kaufman, C. MacDonagh-Dumler, G. Ramirez, and P. Swagel (all WHD), M. Kell (FAD), G. Bannister and Y. Yang (all PDR), B. Hunt (RES), and C. Schnure (ICM)

Approved by the Western Hemisphere Department

July 12, 2002

Contents

  • I. Potential Output Growth

    • A. Introduction

    • B. Potential Output Growth: Revised Estimates

    • C. Sectoral Trends

    • D. The Impact of the Terrorist Attacks

  • Tables

  • I. 1. Estimates of Potential Output Growth

  • 2. Sectoral Productivity Growth

  • Figures

  • I. 1. Measures of the Output Gap

  • 2. Inflation Response to a 1 Percentage Point Fall in the Output Gap

  • 3. Sectoral Output Trend Relative to Overall GDP Trend Hodrick-Prescott Filter

  • 4. Sectoral TFP Relative to Overall TFP

  • II. Evaluating the Evidence of a Capital Overhang in the U.S. Economy

    • A. Historical Trends in Investment and the Capital Stock

    • B. Estimating the Extent of a Capital Overhang

    • C. Industry and Equipment-Specific Overhangs

  • Boxes

  • II. 1. Chain Weighting and Capital-Output Ratios

  • Tables

  • II. 1. Private Investment Rates

    • 2. Private, Fixed Nonresidential Capital Stock

    • 3. Capital-Output Ratio, by Industry

    • 4. Estimates From Cointegrating and Error-Correction Models for the Stock of Equipment and Software Capital

    • 5. Estimates From Cointegrating and Error-Correction Models for the Computer Equipment Capital Stock

    • 6. Growth Rates of Equipment and Software, by Type

    • 7. Summary of Industries with Excessive Changes in the Capital-Output Ratio and Rapid Capital Accumulation

  • Figures

  • II. 1. Gross Private Nonresidential Investment (Fixed)

    • 2. Net Private Nonresidentail Investment (Fixed)

    • 3. Depreciation

    • 4. Capital Output Ratios

    • 5. International Comparisons: Rates and Relative Prices of Investment

    • 6. Stock of Noncomputer Equipment and Software

    • 7. Stock of Computer Equipment

  • III. Corporate Balance Sheets and Economic Slowdowns

    • A. Recent Developments

    • B. Corporate Debt and the Macroeconomy

    • C. Corporate Vulnerability and Recessions

  • Tables

  • III. 1. Average Annual Growth of Corporate Assets and Debt

    • 2. Estimation Results of Fitting the Model to Corporate Yields

    • 3. Predicting the Probability of Recession, Probit Estimations

    • 4. The Severity of Recession Indices

    • 5. Predicting the Severity of Recessions, Ordered Probit Estimations

  • Figures

  • III. 1. Market Debt of U.S. Nonfarm Nonfinancial Corporate Sector

    • 2. Capital Expenditures and P/E Ratios of S&P 500 Composite Stock Index

    • 3. Nonfarm Nonfinancial Corporate Sector: Funds Raised

    • 4. Nonfarm Nonfinancial Corporate Sector: Bank Versus Bond Financing

    • 5. Corporate Sector: Leverage Ratios

    • 6. Corporate Sector: Gross and Net Debt-Service Burden

    • 7. Corporate Sector: Total Leverage

    • 8. Corporate Sector: Maturity Composition of Market Debt

    • 9. Corporate Sector: Total Leverage and Corporate Bond Spreads

    • 10. Corporate Sector: Historical Default Rates

    • 11. Nominal Corporate Bond Yields: Actual and Fitted

    • 12. Real Corporate Bond Yields: Actual and Fitted

    • 13. Corporate Vulnerability Index

    • 14. Probability of Recession, Predicted with the Corporate Vulnerability Index

    • 15. Probability of Recession, Predicted Without the Corporate Vulnerability Index

  • IV. U.S. Productivity Growth, Investor Sentiment, and the Current Account Deficit Multilateral Implications

    • A. The Base Case

    • B. Productivity Catch-Up Abroad

    • C. Lower-Than-Expected Future U.S. Productivity Growth

    • D. Fiscal Shock

  • Figures

  • IV. 1. Increase in U.S. Productivity and Reduction in Risk Premium

  • 2. Alternative Productivity Scenarios

  • 3. Fiscal Shocks

  • V. Recent U.S. Trade and Agricultural Policies and Their International Implications

    • A. Global Impact of the U.S. Steel Safeguard Tariffs

    • B. U.S. Farm Policy and the Global Impact of Agricultural Liberalization

  • Boxes

  • V. 1. Recent U.S. Trade Policy Developments

  • 2. Recent U.S. Farm Policy and Levels of Support to Agriculture

  • Tables

  • V. 1. Effects of U.S. Safeguard Action

  • 2. International Comparisons of Government Policies Aimed at Protecting Agriculture

  • 3. Impact of Agricultural Liberalization

  • VI. Some Implications of Enron’s Failure for Market Rules and Institutions

    • A. Public Disclosures

    • B. Weaknesses in the Accounting System

  • Boxes

  • VI. 1. President’s Ten-Point Plan for Improving Corporate Responsibility

  • VII. Monetary Policy and the 2001 Recession

    • A. Transmission Lags

    • B. Structural Changes in the Response of GDP and its Components to Interest Rates

    • C. Alternative Measures of Monetary and Financial Conditions

  • Figures

  • VII. 1. Percent Impact of 1 Percentage Point Interest Rate Cut on GDP

  • 2. Simulated Impact of the Monetary Policy Easing on Output

  • 3. Correlations Between Federal Fund Rate Changes and Growth of Aggregate Demand

  • 4. Alternative Indicators of the Stance of Monetary Policy

  • 5. Alternative Indicators of Financial Conditions

  • VIII. The Effectiveness of the Fiscal Rules Under the Budget Enforcement Act and Options for Reform

    • A. Introduction

    • B. Background

    • C. Assessing the BEA Rules

    • D. Options for Reform

  • Boxes

  • VIII. 1. The Main Provisions of the BEA

  • Tables

  • VIII. 1. Adjustments to Discretionary Spending Caps

  • 2. Cyclical Contribution to Fiscal Consolidation

  • Figures

  • VIII. 1. Federal Budget Deficit 1962-2001

  • 2. Federal Outlays and Revenues

  • 3. Discretionary Spending

  • 4. Mandatory Spending

  • 5. Projection Errors Due to Economic Factors

  • IX. Social Security, Medicare, and Long-Term U.S. Fiscal Prospects

    • A. Social Security, Medicare, and the Long-Term Fiscal Situation

    • B. Social Security Reform: The President’s Social Security Reform Commission

    • C. Medicare Reform

    • D. Concluding Remarks

  • Boxes

  • IX. 1. The Social Security and Medicare Systems

  • Figures

  • IX. 1. Social Security and Medicare Projections

    • 2. Budget Projections