Second Quarter 1992
Federal Reserve Bank of Dallas

Economic Review was published until 1999.

The Case of the Missing M2
John V. Duca

Since the third quarter of 1990, the growth of M2 in the United States has been weaker than econometric models predicted. John V. Duca assesses whether this shortfall in M2 growth is associated with inflows into bond and equity mutual funds or the thrift resolution process.

Duca finds that while, to some degree, bond funds are good substitutes for M2, bond and equity funds do not account for the shortfall. Most of the missing M2, he concludes, appears to be related to activity of the Resolution Trust Corporation. Duca reasons that resolution procedures can depress M2 in ways not reflected in standard models, such as by forcing an early call of small time deposits and by imparting the risk of prepayment to small time deposits.

Monetary Policy in a Small Open Economy: The Case of Singapore
John H. Wood

John H. Wood studies Singapore, a small open economy dedicated to growth through both saving and the attraction of foreign investment. He finds that the monetary authority's supporting role is the provision of a stable monetary environment, particularly a stable domestic price level. Singapore's monetary authority has unusual freedom from domestic constraints in fulfilling this role because of the government's conservative fiscal policy, control of labor relations, and disinclination to support unprofitable enterprises. Singapore has controlled its inflation by adjusting to changing world conditions. The record indicates that low inflation has been maintained by means of a money growth rule.

Regional Effects of Liberalized Agricultural Trade
Fiona D. Sigalla

Fiona D. Sigalla explores the impact of free international trade in agriculture on individual states and the components of their agricultural sectors. Full multilateral trade liberalization would lower the cost of food and increase gross national product by encouraging reallocation of resources to more productive uses, Sigalla argues. She finds that free trade would have little or no effect on income in six states and that gross agricultural income would rise in six other states. Agricultural income would decline by 7 percent or more in fourteen states and by at least 2 percent in the remaining twenty-four states.

She concludes that trade liberalization would reduce agricultural income in most states, but the small size of the agricultural sector would lead to relatively small income losses that could be offset by gains in other sectors of the economy.