Full text of Review (Federal Reserve Bank of St. Louis) : January 1975

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FEDERAL RESERVE BANK
OF ST. LOUIS
JANUARY 1975




A Primer on Inflation: Its Conception,
Its Costs, Its Consequences..........................

2

Unusual Factors Contributing to
Economic Turmoil
An Address by Darryl R. F ra n cis .................

9

The St. Louis Equation and
Monthly D a t a .................................................... 14
Monetary Effects of the Treasury
Sale of G o ld ...............................................

18

A Primer on Inflation: Its Conception,
Its Costs, Its Consequences
HANS H. HELBLING and JAMES E. TURLEY

GREAT deal of public rhetoric has recently been
advanced regarding our present problem of inflation.
In fact, as the various price indices moved pro­
gressively higher, inflation was elevated to the posi­
tion of “Public Enemy No. 1” . As we crossed the
bridge from single- to double-digit inflation, public
discussion of inflation intensified. Concern has been
expressed that that bridge might very well be burned
behind us unless steps are taken immediately to
assure a return trip to price stability.
Implicit in a decision by society to seek a lower
rate of inflation is some knowledge of the costs in­
volved. In particular, in demonstrating a willingness
to endure some temporary hardship, society decides
that the cost of allowing inflation to continue un­
checked exceeds the cost of pursuing a determined
anti-inflation policy.
For many of us, these costs are not always readily
identifiable and certainly not perfectly predictable.
The purpose of this article is to discuss in general
terms, without attempting to quantify, the costs and
consequences of inflation. Prior to that discussion,
inflation is defined and an explanation is provided
of how inflationary pressures develop.

INFLATION: A DEFINITION
In this article inflation is defined as a continuing
rise in the average level of prices. Although this defi­
nition may seem fairly straightforward and generally
acceptable to all, there are a few distinguishing fea­
tures which are often overlooked in its application.
Specifically, there are three situations which do not
necessarily fit this definition:
1) price increases of individual goods;
2) a once - and - for - all increase in the average
level of prices;
3) a temporary increase in the average level of
prices.
It has been particularly popular in recent times to
focus on the price increases of individual goods and
Page 2



services and conclude, on the basis of that evidence,
that inflation is running rampant. Individual prices
neither cause nor lead to inflation, as defined above.
What is missing is recognition of the fact that there
are a myriad of individual prices which constitute a
given average price level.1 At any point in time,
there are some individual prices being affected by
downward pressures, others by upward pressures. A
measure of inflation is obtained only when the changes
in all prices are considered. In essence, the price of
one commodity may increase in a given period, but
that reveals little about price changes in the whole uni­
verse of other commodities available for consumption.
A once - and - for - all jump in the average level of
prices could occur as a result of some sustained ran­
dom event, but a one - time rise does not affect the
subsequent rate of increase in the average level of
prices. Such a situation is depicted in the accompany­
ing diagram. The trend rate of inflation is indicated
in Figure I by the slope of the line between t0 and
tj. At point t, this trend is suddenly interrupted by
some random event which, for example, causes a cut­
back in the supply of commodities available for con­
sumption. The reduced supply is now consistent with
a higher price level. If the price adjustment were
instantaneous, we would immediately observe a higher
price level but no change in the rate of price increase.
In the real world, however, the adjustment to the
higher price level would not be instantaneous, but
would probably be distributed over some time inter­
val. This is indicated by the dotted line between tj
and t^. Over this adjustment interval, the rate of
change in the price level is higher than the previous
trend rate of inflation. But, it is noted that the trend
rate is re-established after the adjustment is com­
pleted at point ta; that is, the higher rate of change
in the price level during the adjustment period is not
a “continuing” phenomenon. Therefore, at most this
*For a discussion o f one measure o f changes in the price level,
see Denis S. Kamosky, “ A Primer on the Consum er Price
Index,” this R eview (July 1 9 7 4 ), pp. 2-7.

JANUARY 1 9 7 5

F E D E R A L R E S E R V E B A N K O F ST. L O U I S

Figure

1

Price Level Adjustment to a
Random Shock
Price Level
(ratio scale)

commodity will be employed to produce a new
commodity or more of other existing commodities.

THE DEVELOPMENT OF
INFLATIONARY PRESSURES
A Demand-Supply Imbalance
Assuming the market is permitted to function, prices
always and everywhere respond to the forces of de­
mand and supply. When the quantity of goods and
services demanded at prevailing prices exceeds the
available supply of goods and services, prices tend to
rise, frequently with a considerable lag; conversely,
when the supply of goods and services available for
consumption at prevailing prices exceeds the quantity
of those goods and services demanded, prices tend to
decline, also with a considerable lag.

situation can be referred to as a transitory bulge in
the rate of change in the price level. The jump in the
price level might be attributable to the operation of
“special factors”; it would not be appropriate, how­
ever, to label this jump as an increase in the rate of
inflation.
Price is determined by the interaction of supply and
demand forces. Both of these forces can be affected
by temporary events which can alter their previous
relationship. In such situations prices might change,
but since the event is considered temporary and likely
to reverse in some later period, a label of inflation is
not consistent with the definition. For example, if the
harvest of some particular crop is affected by un­
favorable weather conditions, the reduced supply will
be distributed among buyers by a rise in the price
of the crop. This occurs because at previously exist­
ing prices total quantity supplied falls short of total
quantity demanded. Even though this individual price
increase may alfect the average price level, such a de­
velopment need not be regarded as inflationary since
by its very nature “it will be self-limiting, and . . . does
not in itself represent any serious policy problem.”-’
Either the supply of the same commodity will in­
crease again in some later period, or the productive
factors which are released in the production of one
2Harry G. Johnson, E ssays in M onetary E conom ics, 2d ed.
(C a m b rid ge: Harvard University Press, 1 9 6 9 ), p. 104.




Growth of aggregate demand for goods and services
over time is influenced by economic policy actions,
such as the growth of monetary aggregates and the
tax and expenditure actions of the Government. For
the most part, potential aggregate supply of goods
and services tends to grow at a rate independent of
stabilization policy actions. This rate of growth is
determined by factors such as increases in the labor
force, trends in hours worked, and advances in tech­
nology which affect productivity and efficiency.3 An
effective anti-inflation policy, therefore, would be one
in which aggregate demand is permitted to expand at
a rate consistent with the expansion in aggregate
supply.

Noninflationary Actions
According to the analysis presented in this article,
inflation (that is, continuing increases in the average
level of prices) is the result of excessive growth in
aggregate demand relative to aggregate supply. Since
it is generally recognized that the ability to influence
aggregate demand exists, why do inflationary condi­
tions develop? The search for a cause ultimately
leads one to look to the management of Government
economic policies.4
:iIt should be noted, however, that there are situations in which
stabilization policy actions can affect the level of output avail­
able for consum ption. As will be argued later, inflation (a
policy-in d u ced ph en om en on ) affects production efficiency ad­
versely, w hich obviously affects the available supply o f goods
and services.

4 In a recent question and answer session arranged with the
Office o f W om en ’s Programs of the W hite House, Treasury
Secretary W illiam E. Simon m ade the follow ing observations
on G overnm ent’s contribution to the current rate o f price
increases: “ Unsound governm ent policies include our threeyear experiment with w age and price controls. . . . Political

Page 3

F E D E R A L R E S E R V E BANK O F ST. LO UIS

Human nature is such that our
demands for goods and services are
insatiable; that is, we (individually
and collectively) would prefer to
consume more rather than less. The
supply of resources available for con­
sumption, however, is always less
than what we would like to consume.
Given that the quantity demanded
must exceed the quantity supplied
for inflation to occur, does this imply
that inflation is a perpetual develop­
ment buoyed by human nature? No;
one must distinguish between what
we would like to consume and what
we are able to consume. The latter
is determined by our wealth, or
budget, constraint.

JANUARY 1 9 7 5

F ig u r e II

N o n in flatio n a ry Financing
Com m and O ver O utput Equals Output
Q u a n t it y

Q u a n t it y

of Y

Q u a n t it y
of Y

Our constrained demand is an
important element in discussing the
development of inflationary pressures.
To be somewhat more specific than
earlier, inflation occurs when the
amount of goods and services com­
manded (that is, the power which
economic units possess for making
purchases at current prices) persist­
ently exceeds the available supply of
goods and services. Thus, the policy­
makers’ attention should be directed
at maintaining balance between com­
mand over and supply of goods and
services, assuming the avoidance of
inflation is regarded seriously as an
economic goal.

The

d ia g r a m s

in F ig u r e s

e x is t s

and

g o o d s. The
e q u a ls t h e
The

p r ic e o f g o o d X
b u d g e t . In

p o in t w h e r e

e x c lu s iv e ly

III

m ake

t h a t th e

in

t im e s t h e

of a concept re fe rre d

p u rc h a se

p ro d u c e s tw o

m o n e y , w h ic h
q u a n t it y

a l g e b r a ic f o r m , t h e

t h e li n e c r o s s e s t h e

fo r th e

u se

econom y

a b u d g e t , d e n o m in a t e d

can

to

g o o d s--X
be

a s a b u d g e t c o n s t r a in t . F o r il lu s t r a t iv e
and

o f X , p lu s t h e p r ic e

b u d g e t is re p re s e n t e d

h o r iz o n t a l a x i s

of good X ; t h a t is , Q x

re p re s e n ts
= p

.T h e

Y . In

e m p lo y e d

a d d it io n , it is

o n ly f o r th e

of good Y

b y th e

e x p re s s io n

a s it u a t io n

p o in t w h e r e

w h e re
th e

lin e

a ssu m e d th a t

p u rc h a se o f th e se

t im e s

th e

B =

q u a n tity
P j Qx

tw o

of Y

+ PyQ y.

t h e b u d g e t is

used

c ro sse s th e

v e r t ic a l

B
a x i s r e p r e s e n t s c o m p le t e e x h a u s t io n o f t h e b u d g e t f o r th e p u r c h a s e o f g o o d Y ; t h a t i s , 0 y = 'p ~ .
B
B
'
H
T h e p o s it i o n o f t h e b u d g e t l i n e d e p e n d s o n -p~ a n d ~p~. S h i f t s in t h e b u d g e t l i n e , t h e n , a r e t h e r e s u l t o f
rx
T
c h a n g e s in th e l e v e l o f t h e b u d g e t ( B ) , t h e l e v e l o f p r ic e s ( P x , P y ) , o r b o t h . In t h e a b o v e d i a g r a m s , a l l

o f t h e s h i f t s in t h e
A visual presentation of the de­
velopment of inflationary pressures is
displayed in Figures II and III. Fig­
ure II displays the noninflationary actions of indi­
viduals and Government, respectively. Figure III
shows the inflationary actions of the Government and
the induced price level change.

In the analysis of the Government’s contribution to
the economic climate, the following observations are
pressures have long put a prem ium on excessive consum p­
tion. . . . M onetary policies have been overly stimulative. And
Federal budget deficits have been spurring inflation since the
early 1960s.
“ In fact, to m y w ay o f thinking, these unsound m one­
tary and fiscal policies have been the most fundamental causes
o f present-day rampaging inflation.” [U.S., Treasury D epart­
ment, Office o f Public Affairs, D e p a rtm e n t of the T reasury
N ew s, N ovem ber 20, 1974, p. 4.]

Page 4



II

p u r p o s e s , it is a s s u m e d
th e re

b u d g e t li n e

a r e th e

r e s u l t o f c h a n g e s in t h e

s iz e

o f th e

budg et (B ).

made. It is recognized that Government exists to serve
the people and that the people, in turn, collectively
demand services provided by the Government. When
efforts to provide more services lead to expenditures
that exceed Government’s revenues, Government must
extend its command over resources. The means by
which this command is extended is a key considera­
tion in the determination of inflationary pressures.
In the upper panel of Figure II, individual A de­
sires to increase current consumption above that com­
manded by his current income. Individual A decides
that borrowing is the means by which he will increase

F E D E R A L R E S E R V E BANK O F ST. L OUI S

his share of available output.5 This is indicated by an
outward shift in consumer A’s current budget con­
straint, or resource command, line. In making such a
decision, individual A relinquishes claims to future
consumption, to repay the loan, for the purpose of
increasing current consumption. Individual B agrees
to act as a lender and furnish the funds. This is in­
dicated by a leftward shift in B’s current budget
constraint line. In so deciding, individual B foregoes
a part of his current consumption for the sake of in­
creasing future consumption. In the process A has
increased his current purchasing power by the same
amount as B has decreased his current purchasing
power. There is no change in the total command over
available output, only a transfer of command from in­
dividual B to individual A. No inflationary pressures
develop from this process.
This same noninflationary process is observed in the
lower panel of Figure II. Government, for one reason
or another, deems it necessary to increase its com ­
mand over goods and services, as shown by an out­
ward shift in the Government’s budget constraint line.0
So long as this task can be accomplished by siphoning
funds from the private sector (a leftward shift in the
private sector’s budget line), no upward pressure on
prices develops. The transfer of purchasing power
from the private sector to the Government takes place
via explicit borrowing or tax increases.

Inflationary Actions
Figure III reveals the source of sustained price level
increases. In this example, Government decides that
money creation is the means by which it will extend
its power to purchase, while the purchasing power of
the private sector is initially unaffected. In the United
States the process of money creation takes the follow­
ing form. In order to cover expenditures that exceed
current receipts, the Government attempts to sell
securities to the public at a fixed price. If the public
is not willing to purchase all of these neio securities,
the central bank intervenes in the securities market
and purchases already outstanding Government se­
5Another means b y w hich a consumer can increase his con ­
sumption o f goods and services is to accept additional eniloyment. This alternative is not considered here, however,
ecause in the aggregate it involves an increase in output,
violating the im plicit assumption of a fixed supply of goods
and services in the short run.
''Increasing Government com m and over goods and services does
not necessarily mean that Government grows in size, that is,
in terms of the amount o f people it em ploys or the amount
o f resources it consumes. Rather, it is possible that the re­
distributive function o f Government increases; that is, pur­
chasing pow er is increased for those groups of society who
are effective in convincing Government of their “ need” .




JANUARY 1 9 7 5

curities from the public. In the process, the central
bank gains an asset, the Government securities, and
creates a liability, the money paid to the private
sector which finances the purchase of the newly issued
Government securities.
In effect this procedure is tantamount to printing
money. The Government has more funds available to
spend, while the purchasing power of the private
sector appears to remain unchanged. Based on nom­
inal measures, this method is appealing because it
appears that no one is forced to relinquish command
over output for the sake of Government’s gain —
initially we might conclude that all of us are better
off.
Such, however, is not the case. There has been an
increase in the total command over resources by an
amount equal to the quantity of money created. Since
the quantity demanded now exceeds available supply
at current prices, the economy generates reactions
which tend to restore economic balance. The most
dominant “balance-restoring” reaction is price level
change. This process is indicated in Figure III which
shows that increased Government spending under­
written by monetary expansion results in a price level
increase. This, in turn, reduces the private sector’s
purchasing power and restores balance between out­
put and output commanded. If, however, the Govern­
ment maintains the policy of attempting to satisfy
unlimited wants by, in effect, “printing money,” a
continuous imbalance between supply and demand
results and price level increases will persist.7

COSTS AND CONSEQUENCES OF
INFLATION
In the United States, as well as in many other
countries, price stability has long been regarded as
a desirable goal. For almost a decade, however, this
goal has remained elusive. One reason for its elu­
sive quality has been the promulgation of the belief
that the short-run cost of reducing the rate of inflation
was greater than the cost of allowing inflation to con­
tinue unchecked. Another reason may be a lack of
understanding of the causes and cures of inflation.
Wage and price controls were a dramatic attempt to
lower the rate of price increases while avoiding the
"A G overnm ent-induced deficit is not necessarily the only
means b y w hich an im balance betw een supply and dem and
at prevailing prices occurs. For example, as noted earlier, if
part o f the private sector desires m ore current consumption,
enlarged loan dem and w ill exert upw ard pressure on interest
rates. T he central bank, in an attempt to resist this upw ard
pressure, may respond b y expanding the nation’s m oney
supply. In this process, there is no corresponding reduction
in consum ption in another part o f the private sector.

Page 5

JANUARY 1 9 7 5

F E D E R A L R E S E R V E B A N K O F ST . L O U I S

F ig u r e

III

In flatio n ary Fin ancing
C om m and O ve r O utput E x ce e d s O utput

In fla tio n -In d u ce d A d ju stm en t

Q u a n t it y

Q u a n t it y

Q u a n t it y

of Y

of Y

of Y

In

th e

d ia g r a m

d i a g r a m ) . In

on
th e

th e

fa r

d ia g r a m

le f t ,

th e

G o v e r n m e n t ’ s b u d g e t ( B ) is

on

th e

fa r

r ig h t ,

th e

p r iv a t e

e x te n d e d

th ro u g h

se c to r’ s com m and

over

temporary costs of transition. As the “control” effort
proceeded, underlying inflationary pressures mounted
as a result of the maintenance of stimulative monetary
and fiscal policies, and economic dislocations devel­
oped. With the realization that controls were a failure
and the recognition of the costs of unchecked infla­
tion, a re-evaluation of the inflation-price stability
alternatives has been necessary.
Inflation, at any rate, generates very definite effects.
These effects are related to both the transfer of wealth
from one economic group to another and the alloca­
tion of resources from productive to unproductive
activity. In addition, if the rate of price level increases
is allowed to reach some critical point, there exists
a potential for serious distortions in our system of
economic as well as political organization.

W ealth Transfer
There are a variety of features which distinguish
one type of inflation from another. An inflation which
proceeds at a relatively steady, and hence predictable,
pace has one set of effects; an inflation which pro­
ceeds by “fits and starts,” and is thus not very pre­
dictable, has another set of effects.8
Holders of money lose wealth during a period of
inflation, regardless of the type of inflation. Since
cash balances do not earn interest, they do not rise
as prices rise. Therefore, purchasing power, or com­
8M ilton Friedman, D ollars a n d Deficits: L iving w ith A m erica’s
E conom ic P roblem s (E n g lew ood Cliffs: Prentice-Hall, Inc.,
1 9 6 8 ), pp. 46-50.

Digitized forPage
FRASER
6


th e

c re a tio n

o u tp u t is

of

re d u ce d

m o n e y , le a v in g
over

t im e

th e

th ro u g h

p r iv a t e

se c to r’ s b u d g e t

in c r e a s e s

in

th e

p r ic e

un chan ged

( m id d le

le v e l ( P ) .

mand over resources, declines for those economic
units whose assets are held in money form.
The generalization that inflation causes a rechan­
neling of wealth from creditors to debtors is incom­
plete unless accompanied by statements about the
extent to which inflation is correctly anticipated. This
effect of inflation is most easily observed in a situation
where the price level changes rather sharply over
relatively short time spans, catching economic units
unprepared.
In such a situation, a transfer of wealth occurs
when economic units engage in transactions with a
less than accurate perception of the future rate of
inflation. For instance, sellers may contract to sell their
goods and services in the future at prices which in­
corporate an inadequate adjustment for inflation. It
follows that the receipts from the sale of these goods
and services, when adjusted for the actual rate of
inflation, will not be sufficient to permit the main­
tenance of the seller’s real standard of living. The
buyer, however, has experienced an increase in real
wealth as the product purchased has appreciated in
price by an amount greater than that anticipated at
the time of contract formation. In effect, there has
been a transfer of wealth from the seller to the buyer.9
•'A consequence of such an inflation-induced transfer o f wealth
may b e a reduction in p eop le’s willingness to lend long term.
A reduction o f long-term loans is likely to have allocative
effects w hich cou ld reduce econ om ic welfare. For example,
the financing o f the U. S. housing industry is predicated on
long-term loans. If average m ortgages were reduced to, say,
ten years, a great many people w ould find the cost of home
ownership prohibitive.

F E D E R A L R E S E R V E B A N K O F ST. L O U I S

In addition, those receiving pensions fixed in amount
or those who maintain their savings in the form of
fixed income assets will find that the purchasing power
of these assets declines also.
In a steady, fully anticipated inflation little wealth
redistribution occurs, except for those whose wealth
is held in the form of money.10 Economic units ex­
pect prices to rise at some average rate and thus
make a variety of economic arrangements that will
adjust for the expected price rise. For example, wage
contracts would include escalator clauses or would
be drawn up on the basis of the average rate of in­
flation expected. Interest rates would include a pre­
mium based on the generally expected increase in
the level of prices. As a result of near-perfect antici­
pation of inflation, no particular group would be
forced to transfer wealth to another group because
of the change in the price level.11

Resource Utilization and Allocation
This is not to say, however, that the steady inflation
is without costs. As mentioned earlier, inflation of any
magnitude has the effect of making cash balances
(money) an expensive item to hold. As inflation pro­
ceeds, more and more effort is devoted to keeping
this expense at a minimum. By constantly scrutinizing
one’s cash position, valuable productive time is wasted
and, in general, scarce resources are diverted from
more productive activity to less productive activity
due to the required monitoring of inflation. Otherwise
productive members of the labor force become in­
volved in not only figuring out what the changes in
prices and wages are likely to be, but also in hedging
against those changes.
In the veiy process of predicting inflation, transac­
tions and information costs are likely to increase. For
example, list prices would be difficult to establish
for any length of time. Firms issuing catalogs contain­
ing the prices of their products would find it difficult
to continue this practice. Sales representatives would
be forced to contact head offices for the most up-todate prices. In general, business planning would be
frustrated because it would be necessary to constantly
reassess price information. As this sort of activity be­
comes widespread, society in general experiences a
decreased level of output available for consumption.

JANUARY 1 9 7 5

Potential Cost: Serious Economic
Dislocations
As the recently recorded rates of inflation ap­
proached and exceeded 10 percent, public concern
about inflation intensified. In fact, several spokesmen,
both within and outside of Government, have painted
a very gloomy picture of our future in the event that
inflation is not brought under control. According to
this view, disruptive forces, inherent in an advanced
inflationary process, may surface and cause serious
distortions in our economic system. Such distortions
could become severe enough to ultimately result in
strong desires to change our institutions.
In all economies with organized markets, at least
one commodity evolves as universally acceptable in
exchange for all other commodities. “Money” is the
commodity which serves this purpose. Money also
provides services as a store of purchasing power and
as a unit of account for recording relative values.12
During periods of inflation all of these services from
money are diminished. Its function as a store of pur­
chasing power declines, its credibility as a unit of
account suffers, and its reliability as a medium of
exchange is subject to greater uncertainty. As these
services continue to erode as a result of accelerating
inflation, there is a tendency for economic units to
restructure their portfolios of real and financial assets.
The restructuring takes the form of an attempt to
reduce holdings of money and to increase holdings of
other assets.
At some point in the inflationary process, referred
to as the inflation threshhold, it is generally believed
that this sort of activity reaches epidemic propor­
tions and proceeds at a very rapid pace. Such a re­
action could be triggered by the recognition that the
cost of holding money, especially that cost related to
declining purchasing power, is so great that wide­
spread divestment of money by individuals is pur­
sued. Society as a whole, however, is not able to divest
itself of the available stock of money; it can only
circulate the existing stock of money at a faster rate.
As a consequence, inflation changes from a canter to
a gallop, being spurred by changes in the velocity of
money circulation, completely independent of cur­
rent monetary policy actions.
If inflation were to proceed to such an extent that
money, as customarily defined, no longer serves as a
medium of exchange, another commodity or commodi-

'"Friedm an, D ollars a n d D eficits , p. 47.
11 It should he noted, however, that even in a noninflationary
climate there are always changes in relative prices taking
place. Associated w ith such relative price changes are
transfers o f w ealth from one group to another.




'-F o r a theoretical discussion of the services o f money, see
Karl Brunner and Allen H. Meltzer, “ The Uses o f M oney:
M oney in the Theory o f an Exchange E con om y,” T he
A m erican E conom ic R eview (D ecem b er 1 9 7 1 ), pp. 784-805.

Page 7

F E D E R A L R E S E R V E B A N K O F ST. L O U I S

ties would emerge as money. Initially, however, it is
not likely that any other single commodity would be
accepted as a means for conducting transactions. A
single commodity may eventually emerge to serve as
money or what is more likely, a new form of currency
would be introduced. During the transition, however,
barter would probably become the common mode of
transacting. This, then, is what is meant by serious
economic distortion — barter (that is, goods and
services being directly exchanged for other goods
and services) becomes the dominant method of ex­
change. It is the consequence of a period of runaway
inflation.

SUMMARY AND CONCLUSION
This article defined inflation as a continuing rise in
the average level of prices. The cause of inflation
was identified as the accommodation of unlimited
wants through excessive monetary expansion. The costs
of inflation include: a less than optimal resource use;
an arbitrary redistribution of income in the case where
inflation is less than perfectly anticipated; and to the
extent that inflation is permitted to accelerate, the
eventual occurrence of severe disruptions in our eco­
nomic system.
In evaluating the inflation-price stability alterna­
tives, a great deal of attention has been focused on


Page 8


JANUARY 1 9 7 5

the costs of achieving price stability. Often ignored,
however, is the recognition that these costs are of a
short-term nature; that is, declines in production and
increases in unemployment occur during the period of
adjustment to a lower rate of inflation.
In an apparent willingness to accept these costs,
society may demand the initiation of an anti-inflation
policy. However, once the short-term costs associated
with such a policy manifest themselves and inflation
appears to remain unaffected, society may demand a
hasty policy reversal. Failure to recognize the long
lags associated with the initiation of an anti-inflation
policy and the expected results of that policy results
in short-run costs being incurred while the long-run
benefits are not given sufficient time to materialize.
One can only hope that both the short- and longrun aspects of an anti-inflation policy will continue
to be discussed. If attention is focused only on the
short-term costs of reducing inflation, public senti­
ment toward the achievement of this goal might
weaken. In such a case a high and accelerating rate
of inflation is likely to plague the economy for many
years to come. If, however, concern about the long­
term effects of accelerating inflation remains strong,
then the adoption and continuation of a determined
anti-inflation policy may eventually succeed.

Unusual Factors Contributing to Economic Turmoil
Remarks by DARRYL R. FRANCIS, President, Federal Reserve Bank of St. Louis,
Before The Wesleyan Associates, Illinois Wesleyan University,
Bloomington, Illinois, December 6, 1974

_I_ HE YEAR we are about to end has been very
unusual in that it was characterized by one of the most
rapid increases in the price level, and by one of the
sharpest drops in reported real output in the postWorld War II period. In order to understand the view
we hold at the Federal Reserve Bank of St. Louis
regarding the outlook for 1975, it is necessary to take
time to develop, in some detail, the interpretation we
apply to the events in 1974.
First, let’s review some definitions of economic con­
cepts. We all talk about inflation; we hear a lot about
inflation; but I think that there are some inaccurate
ideas prevailing in the press and in the minds of the
general public as to what the phenomenon called in­
flation really is. Inflation is simply a process involving
erosion of the purchasing power of a nation’s money
supply — that is, simply a deterioration in the ex­
change rate between money and goods and services.
I use the word “process” because inflation is an on­
going phenomenon; it is continuous, although not nec­
essarily at a steady rate. This is distinct from a price
increase, or an increase in the price level that is not
continuous, or ongoing. That distinction becomes very
crucial to understanding the forces influencing our
economy and general welfare in 1974.
The general phenomenon of a continuous inflation
is due basically to monetary causes. Normally, we
attribute inflation to a growth in the nation’s money
supply which produces a growth of total spending at a
rate faster than the growth in real output — in other



words, too much money chasing too few goods. Since
inflation is a decline in the purchasing power of
money, I think that there can be little quarrel with
the general idea that inflation is a monetary
phenomenon.
However, while a persistent inflation occurs only as
the growth in money supply and resultant total de­
mand for goods and services exceeds the total supply
of goods and services, a temporary or transitory infla­
tion can result from forces which produce a decline in
the supply, or ability to produce goods, while demand
continues to grow. In other words, a temporary bulge
in the rate of inflation, while the economy is adjusting
to a new higher equilibrium price level, is not neces­
sarily associated with a marked acceleration in the
rate of growth of the money supply. On the contrary,
it can be associated with a steady, continuing growth
of the money supply and aggregate demand for goods
and services, while at the same time there is a sudden
drop in the economy’s real economic capacity.
It is our view that both a persistent monetary infla­
tion and a temporary bulge in the rate of inflation
occurred in 1974 in the United States and in many
other countries of the world. Our analysis holds that
the trend growth in the nation’s money supply this
year and over the past four years is consistent with an
ongoing, sustained rate of increase in the general price
level of about 5 to 6 percent per year. This year, how­
ever, we have seen both the GNP implicit price de­
flator and the consumer price index increase in excess
Page 9

F E D E R A L R E S E R V E BANK O F ST. LOUIS

of 12 percent. This is an increase that we do not be­
lieve can be explained by the growth of the money
supply, either this year or over the past few years.
W e attribute about half of the increase in the gen­
eral price level this year to the trend growth of the
money stock, and about half to forces which con­
strained the real economic capacity of the U. S. econ­
omy. W e consider these forces to have only a
one-time, transitional effect, although the process is
distributed over a period of time that has so-far lasted
about four quarters.
Given this view, we would argue that the rate of
increase of the general price level will decelerate to
the range of 5 to 6 percent per year, even if the rate
of growth of the nation’s money supply were to con­
tinue at about the same average pace observed over
the past several years. To put it another way, we think
about one-half of the inflation observed this year was
of the persistent excessive aggregate demand variety,
and about one-half was of the temporary, or transitory,
variety. The latter occurred as the economy adjusted
to a lower real economic capacity, and therefore, a
higher equilibrium level of average prices.
Allow me to take a few moments to review the de­
velopments of the past few years. During 1967 and
1968 there is no doubt that stabilization policies in
the United States were highly expansionary. This con­
tributed both to an acceleration in the rate of inflation
and to a high rate of real output growth accompanied
by a low rate of unemployment. In 1969 monetary
actions turned decisively restrictive as monetary pol­
icymakers sought to curb the building inflationary
pressures. The actions taken in 1969, as indicated by
a marked reduction in the rate of growth of the na­
tion’s money stock, produced a slowdown in aggregate
demand in 1970 and resulted in conditions that were
characteristic of the previous business cycle recessions
in the post-World War II period. Quite appropriately
(and some time after the fact) the National Bureau
of Economic Research declared that a recession had
occurred, lasting approximately from November 1969
to November 1970.
During 1970 the rate of growth of the nation’s
money stock reaccelerated as policymakers sought to
cushion the weakening economy. At the same time,
the Federal Government’s budget produced a deficit,
indicating ( according to the usual analysis) that fiscal
policy was also stimulative.
In 1971 the growth of the money stock accelerated
further and, then again in 1972 another step-up oc­
10
Digitized for Page
FRASER


JANUARY 1 9 7 5

curred. It was not surprising that growth in the de­
mand for goods and services rose markedly through
this period. I would argue that forces were at work
contributing to the building of a familiar inflationary
process, wherein too much money is chasing too few
goods as the economy approaches its real economic
capacity. Thus, we saw an erosion of the purchasing
power of the nation’s currency.
The inflation was not directly observable in the
second half of 1971 and throughout 1972 since the
Government chose to impose a rather rigid system of
wage and price controls. These controls, if nothing
else, had the effect of holding down the reported in­
creases in prices, and therefore, the rise in the price
indices. However, the system of controls began to
break down, as was inevitable, and early in 1973 the
Administration switched to a much less rigid program
of controls, thereby allowing a catch-up to begin.
Throughout 1973 the rate of price increase, as meas­
ured both by the consumer price index and the GNP
deflator, accelerated sharply as the process of de-con­
trol allowed the markets to begin to take us back to
conditions consistent with underlying economic forces.
The growth of the nation’s money stock in 1973 was
somewhat slower than the rate experienced in 1972,
but was still at a very high rate by historical standards.
According to some empirical research at the Federal
Reserve Bank of St. Louis, even though the rate of
price increase in 1973 was much more rapid than im­
plied by the growth in the money stock that year and
in the years immediately prior, the price level at the
end of 1973 was below the one indicated by the
growth of the money stock over the prior few years.
In other words, this research indicates that in the sec­
ond half of 1971 and throughout 1972 the price level
was being held below what the prevailing monetary
growth would have implied. Therefore, in 1973 the
high rate of price increase was simply the expected
consequence of the removal of controls and return to
the rate of exchange between money and goods that
would bring us back to equilibrium conditions. In
other words, after the re-adjustment or “catch-up”
process was completed, we would expect a level of
prices, as indicated by monetary growth, to prevail.
It is our judgment that the distortions on prices
caused by controls and de-controls had pretty well
worked themselves out by the end of 1973. Moreover,
we would argue that the rate of inflation in 1974
would have been less than in 1973 (and only about
half what has actually been observed in 1974) if there
had not been a succession of what have become

F E D E R A L R E S E R V E BAN K O F ST. L OUI S

JANUARY 1 9 7 5

known as “special factors” which were providing fur­
ther shocks to the economy.

towards the production of clean air, clean water, and
greater safety.

One of the factors affecting relative prices (and
therefore production) in the past few years is related
to the depreciation of the dollar that occurred since
1971. The fact that the depreciation occurred indicates
that the U. S. price level was out of line with its major
trading partners. What had happened was that in the
late 1960s and early 1970s, as the United States was
pursuing inflationary policies associated with large
Government deficits and a high rate of military spend­
ing, the international agreement on exchange rates
(known as Bretton W oods) served to hold down prices
of foreign goods to American consumers and pro­
ducers, while raising prices of our goods to foreigners.

In the language of economists, these decisions es­
sentially amounted to a change in our society’s con­
sumption basket, wherein we decided to forego the
production of some goods, both now and in the future,
in favor of the rather intangible benefits of less pollu­
tion and more safety. Given limited resources, such a
re-allocation of resource utilization necessitates a re­
duction in our ability to produce the usual types of
goods and services. In other words, we made a social
and political decision which resulted in an absolute
decrease in our production capacity for goods and
services.

This means that for a number of years we were
experiencing less inflation to the extent that foreign
goods, in relative terms, became successively cheaper.
Also, our goods were not being demanded in the same
quantities that would have otherwise occurred. But
once the dollar was permitted to depreciate, there
were sharp shifts in underlying conditions. Demand
for some goods declined and demand for other goods
increased, bringing about marked shifts in relative
prices to U. S. consumers. The prices of foreign goods
rose sharply, while the prices of our goods to foreign­
ers decreased sharply in terms of their currencies.
Since foreign goods were now more expensive to us,
American consumers and producers shifted their de­
mands away from foreign goods and towards the rela­
tively cheaper American produced goods. Similarly,
the now cheaper American goods caused foreigners to
step-up their purchase orders of our products. The
adjustment to these sudden changes in relative prices
naturally would be distributed over an extended pe­
riod of time.
In addition to the shifts in demand and the asso­
ciated changes in relative prices caused by the dollar
depreciation, the American social and political process
resulted in decisions to shift the utilization of some of
our nation’s resources away from the production of
conventional goods and services and towards a health­
ier living environment and a safer working environ­
ment. These laws took many forms, but basically they
have been geared towards less pollution of the air by
our factories and automobiles; less pollution of our
nation’s rivers and a safer working environment, as
well as safer automobiles to transport American citi­
zens. These decisions to re-allocate a share of our
resources towards these objectives naturally implied
significant shifts in demand, for both labor and other
resources, away from the production of “ widgets” and



Furthermore, there were other factors at work con­
straining the domestic supply of goods. Crops around
the world were not good in 1972. Foreign exchange
rates were changing in the direction that made Ameri­
can goods look cheaper, and at the same time foreign
countries were producing less grain, less anchovies,
and so on; so naturally the demand for American
agricultural products increased markedly. And we met
that demand through very large increases in the vol­
ume of goods exported. Consequently, it should not be
surprising that there were less goods and services
available for American consumers.
Then late in 1973 the oil producing and exporting
countries outside the United States (called OPEC)
took collusive action to bring about a sharp in­
crease in the world price of petroleum products. Let
me digress a moment and characterize what had been
going on. The OPEC group had been selling their oil
output to the Western world countries at prices that
now look quite low indeed. With the revenue received
from oil, they purchased goods and services from the
Western world. In other words, viewed in barter
terms, they were exchanging current output of oil for
current goods and services produced by others. By
agreeing to raise prices, the OPEC group, in effect,
decided that they wanted to receive not only claims
to current output in the Western world in exchange
for oil, but also claims to future output.
The way this takes place is that we wind up selling
securities to them, either equities or bonds, which
represent claims to our future production of goods and
services. In a very crude sense, we are now giving up
some of our future production in exchange for some
of their present oil. Even at the higher prices, ap­
parently we are willing to do so rather than accept
the alternative of reducing our current rate of oil
consumption. Nevertheless, the effects are the same:
Page 11

F E D E R A L R E S E R V E BANK O F ST. LO UI S

U. S. consumers have had a wealth loss. W e have been
made poorer by the actions of the OPEC cartel. The
standard of living of American consumers has been
reduced, and probably will grow at a slower rate,
because of the higher price of oil. The effects of the
higher price of oil and substitute sources of energy
have created massive shifts in demands, and there­
fore relative prices, which has been a dominant factor
in the developments experienced in 1974.
The higher cost of energy, together with the envi­
ronmental and safety laws, acts as a tax imposed upon
the economic productive capacity of the United States.
This means that the present value of the existing
capital stock was reduced in much the same way as
the value of the capital stock would decrease if the
Government were to increase sharply the corporate
tax rate. The decrease in the present value of the
capital stock means that equity prices on the stock
market decrease, reflecting the fact that the expected
real earning power of corporations has been reduced
by these varied actions.
The decrease in the real economic capacity of the
country is, by and large, a one-time occurrence. How­
ever, the shifts in demand and changes in relative
prices to adjust to a new equilibrium take some time
to be fully completed. So far, this year has been one
of four calendar quarters of shortages, sharp increases
in the prices of many commodities, and a marked de­
crease in the reported volume of real output; but at
the same time a continued high level of total
employment.

This latter development, a rather high level of total
civilian employment, is a development that I do not
believe has received sufficient attention this year. The
unemployment rate has been widely publicized, but
the total number of persons employed has not been.
The very sharp increase in the price level, even
though about half the rate of inflation was transitory,
did have the effect of reducing the standard of living
of American consumers. That’s part of the adjustment
process. But because of the inflation, many persons
who were not otherwise counted as part of our labor
force — such as women, and young people — were
induced to declare their intentions to seek jobs. More
women found it desirable to work to supplement
family income, and students chose to postpone enter­
ing or returning to college. This increase in the overall
participation rate in the labor force was very large by
historical standards. The increase in the participation
rate was much faster than the ability of the economy
to absorb these new job-seekers.
12
Digitized forPage
FRASER


JANUARY 1 9 7 5

But why dwell on the fact that about one-half of the
number of new persons seeking jobs did not find them,
while neglecting the fact that one-half of these new
entrants into the labor market did find jobs. Since one
of the inputs to production — energy — has increased
sharply in cost, our economic analysis tells us that the
demand for other inputs to production, such as labor,
would increase since the cost of these other inputs
have become relatively cheaper. Since the present
value of the existing capital stock in the U. S. economy
has declined, there is naturally an increase in the de­
mand for additions to capital stock; and therefore we
have had an investment, or capital goods, boom
throughout this year. That’s what we would expect
under the circumstances; and the fact that it takes
quite a bit of time to put new plant and equipment
in place indicates to me that, in the short run, firms
will seek more labor as a temporary substitute for
capital as they try to maintain production while wait­
ing to restore real economic capacity.
The so-called “real output” numbers derived from
the national income accounts give us an idea about
changes in the volume of goods and services produced
over time. But if we are devoting a much larger pro­
portion of our resources to the production of such
things as a cleaner environment and safer working and
living conditions, then I believe it is appropriate to be
skeptical of interpretations of the falling real output
as being solely indicative of a sluggish economy.
Look at what goes into producing 1975 automobiles;
in addition to the pollution control and safety devices
on the automobile itself, there are environmental and
safety restrictions imposed on the manufacturing proc­
ess. And I think that in terms of inputs, the auto
industry continued to command a very large share
of our resources until very recently, even though the
volume of outputs, measured simply as the number of
cars, declined.
With this analysis as background, let me turn to a
few remarks about appropriate stabilization policy
actions. On the one hand there is a temptation to want
to do something about the 12 percent inflation, and
on the other hand there is the desire to do something
about the falling real output and rising unemploy­
ment rate. According to my interpretation of the
events of the last few years, I believe that, without
further special actions on the part of either monetary
or fiscal authorities, and continuation of monetary
growth at the 1973-74 rates, the rate of inflation will
decelerate markedly next year to the range of 5 or 6
percent. At the same time, the growth in real output

F E D E R A L R E S E R V E B A N K O F ST. L O U I S

should resume and I doubt that the rate of unemploy­
ment will rise as high as some analysts have feared.
We have had a wealth loss; our standard of living
has declined, and our absolute real economic capacity
is now lower than it was a year ago. We should not
seek policies designed to close the gap between what
we are now producing and what could be interpreted
as being real potential before the energy crisis, the
environmental laws, the safety laws, the agricultural
short-falls, and so on. That is simply unobtainable. In­
stead, we are forced to be satisfied to see a resump­
tion of the growth rate of real output consistent with
long-term growth trends in population, technology,
and so forth — in other words, around three to four
percent. But let me quickly add that this would also




JA N U A R Y 1 9 7 5

occur without any overt actions by government
policymakers. As long as we do not suffer any further
adverse shocks to the economy, I believe that the
inherent stabilizing properties and the resiliency of
the market system will return us to our potential
growth path.
If Congress wishes to take some sort of action to
increase the total output of consumers’ goods, then it
will have to think in terms of relaxing the environ­
mental and safety standards imposed on industry gen­
erally and on specific consumer products, such as
automobiles. Short of that, more spending programs
to simply augment aggregate demand runs the risk of
creating conditions leading to further acceleration in
our underlying, permanent rate of inflation.

Page 13

The St. Louis Equation and Monthly Data
KEITH M. CARLSON

I n
THE November 1968 issue of this Revieiv,
Leonall C. Andersen and Jerry L. Jordan published a
study which reported results relating to the response
of GNP to monetary and fiscal actions.1 Since then,
there have been a number of articles which have
analyzed and challenged these findings.2 Even
though the final returns are probably not in yet, one
has to be impressed with the way their results have
withstood the criticism to which they have been
subjected.3
The Andersen-Jordan article was concerned with
the relative impact of monetary vs. fiscal actions,
testing hypotheses relating to the magnitude, speed,
and reliability of the response of GNP. Yet one of the
more interesting implications of the St. Louis equa­
tion (the reduced-form equation developed in their
article) was that GNP responds quickly to monetary
actions and that the adjustment is essentially com­
pleted in a year’s time. This finding ran contrary to
the prevailing view at that time, which was based, in
part, on results obtained by large econometric models.
For example, the Federal Reserve — MIT econometric
model, a model specifically designed to quantify the
effect of monetary actions on the economy, concluded
^Leonall C. Andersen and Jerry L. Jordan, “ Monetary and
Fiscal A ctions: A Test o f Their Relative Importance in E co ­
nom ic Stabilization,” this R eview (N ovem b er 1 9 6 8), pp.
11-24.
-Representative examples are Frank deL eeuw and John Kalchbrenner, “ M onetary and Fiscal A ctions: A Test of Their
Relative Importance in E con om ic Stabilization — Com m ent,”
this R eview (A p ril 1 9 6 9 ), pp. 6-11; Richard G. Davis, “ H ow
M uch D oes M oney Matter? A Look at Some Recent E vidence,”
Federal Reserve Bank o f N ew York M onthly R eview (June
1 9 6 9 ), pp. 119-31; Franco M odigliani, “ M onetary Policy and
Consum ption: Linkages via Interest Rate and W ealth Effects
in the FM P M od el,” C onsum er S pending a n d M onetary
Policy: T he L inkages (Proceedings o f a Monetary Conjerence
held on Nantucket Island, Sponsored by Federal Reserve
Bank of Boston, June 1 9 7 1), pp. 59-74; Law rence R. Klein,
“ Em pirical E vidence on Fiscal and Monetary M odels,” in
James J. D iam ond ( e d .) , Issues in F iscal a n d M onetary

Policy:

T he

E clectic

E conom ist

Views

th e

C ontroversy

(D eP a u l University, 1 9 7 1 ), pp. 35-50; and Alan S. Blinder
and Robert M. Solow, “ Analytical Foundations o f Fiscal
Policy,” T he E conom ics of P u b lic F in a n c e (W ashington,
D .C .: The Brookings Institution, 1 9 7 4), pp. 63-71.
3Professor Klein, for example, draws the follow in g conclusion:
“ Hard econom etric evidence points to the fact that large
structural models stand up at least as w ell as small reduced
form m odels.” [Klein, “ Em pirical E vidence on Fiscal and
Monetary M odels,” p. 49.]

Page 14



“that monetary policy is ultimately quite powerful
but that the lags are long.”4
There is an indication that some of the large
econometric models have been modified in such a
way that the impact of monetary actions now appears
to be quicker than in earlier versions.5 For the most
part, however, the St. Louis equation continues to
stand apart from other models, showing that virtually
all of the GNP response to changes in money occurs
in about a year, though mention should be made of
another model — the Laffer-Ranson model.6 Arthur
Laffer and David Ranson not only found a quick
response to monetary actions, but they concluded
that monetary actions have an immediate and per­
manent effect on the level of GNP, rejecting the
presence of any lags at all.
The purpose of this note is to report the results
of estimating the St. Louis equation with monthly
data and thereby sharpen our understanding of the
lag in the effect of monetary and fiscal actions. The
question being asked here is whether the St. Louis
equation continues to hold when monthly data are
used in the estimation. It is well-known among eco­
nomic analysts that the use of data aggregated over
time can introduce a bias in the results.7

Data
The data used to estimate the St. Louis equation
consisted of changes in nominal GNP as the depend­
ent variable and alternative measures of monetary
and fiscal actions as the independent variable. For
purposes of comparison here, only the specification
4Frank deL eeuw and E dw ard M. Gramlich, “ T he Federal
Reserve — M IT Econom etric M od el,” Federal Reserve B ul­
letin (January 19 6 8), pp. 11-40.
•"'See Gary From m and L. R. Klein, “ The N B E R /N S F M odel
Com parison Seminar: An Analysis of Results,” forthcom ing
in A nnals of E conom ic a n d Social M easurem ent.
^Arthur B. Laffer and R. D avid Ranson, “ A F onnal M odel of
the E con om y,” T he Jo u rn a l of B usiness (July 1 9 7 1 ), pp.
247-60.
7Yair Mundlak, “ A ggregation O ver Tim e in Distributed Lag
M odels,” In tern a tio n a l E conom ic R eview (M a y 1 9 6 1 ), pp.
154-63, and W illiam R. Bryan, “ Bank Adjustments to M on e­
tary Policy: Alternative Estimates of the L a g,” A m erican
E conom ic R eview (Septem ber 1 9 6 7), pp. 855-64.”

JANUARY 1 9 7 5

F E D E R A L R E S E R V E BAN K O F ST. L OUI S

Summary of Lag Response
M o n th ly v s . Q u a r t e r ly S p e c ific a tio n
S a m p le P e rio d : 1953-1973
E F F E C T O F F IS C A L A C T IO N S
C u mu l a t e d Mul t i pl i er s
Cu mu l a t e d Mul ti pl i er s

E F F E C T O F M O N E T A R Y A C T IO N S

t-l
t-1

t+l

t+3

t+5
t+l

t

t+7

t+9
t+2

t+11
t+3

t +13 1+15
t+4

P e r c en t of T o t a l
1 40

t-l
t-l

t+17
t+5

Pe r c ent of T o t a l
140

130

120

120

120

110

110

110

100

100

100

90

90

90

80

80

70

70

80

✓

60
/

50

/

✓
>
/

40
30

20
/

✓

✓
/

0

✓

f

✓
✓

/
✓

/

/

/

60

60

50

50

/

t+l

1

........

t+3
t

t+5
t+l

t+7

t+9
t+2

t+11
t+3

t + 1 3 t +15
t+4

t+17
t+5

Pe r c ent of T o t a l
140
1 30
Q u a rte rly

t

i

V
V

120
\

\

/

110
N
\

100
90

t

80

t
1

1

t+9
t+2

1

1

t+11
t+3

70
M o n th ly
60

i
1

50
1

40

40

30

30

20

20 .1 /

10
i

t+7

/
/
/
/
/

M o n th ly

.

_

t+5
t+l

1

/

✓

t ■1
t ■1

✓

Q u a r te r ly ,
/
✓

70

10

✓

t+3
t

Percent of Total
140

130

130

t+l

1

1

t+13 t+15
t+4

1

0
t+17
t+5

1
I

40

/

30

/

20

1 /
10 i 1
l/
0 t ______ t
t +l

t

10
\

t+3
t

i

i
t+5
t+l

i

.

1

t+7

t+9
t+2

1
t+11
t+3

i

i

.

t +13 t +1 5
t+4

i

0
t+17
t+5

Note: Dependent v a ria b le for monthly d ata is d ollar change in personal income and for quarterly data is change in current d o llar GNP.
The horizontal scale shown as t-1 through t+17 refers to months, and that shown as t-l through t+5 refers to quarters.

preferred by Andersen and Jordan is used. That
specification used money, narrowly defined as demand
deposits and currency held by the public, as the



measure of the monetary variable, and high-employment Federal expenditures as the measure of the
fiscal variable.
Page 15

JANUARY 1 9 7 5

F E D E R A L R E S E R V E BANK O F ST. LOUIS

Table I

ST. LO UIS EQ U A TIO N
M onthly vs. Q u a rte rly D ata
1953 - 1973
(Fourth Degree Polynom ial with t —
j— 1 = t - n = 0 )
M onthly Data____________________________
aefficients
t
1- 1
t- 2

A m

2Am

.45

.11
(1 .9 6 )

t-4

.3 2
(3 .8 7 )

t- 5

.35
(4 .1 9 )

t —6

.38
(3 .8 6 )

t- 7

.3 9
( 3 .6 2 )

t- 8

.3 9
( 3 .6 4 )

-.0 1
( - .2 6 )

t- 9

.38
(3 .9 3 )

-.0 1
( - .2 5 )

t - 10

.3 6
( 4 .3 2 )

t - 11

.3 3
(4 .0 6 )
.2 8
(2 .9 4 )

.95

1.16

1.07

- .0 0
( - .0 4 )
.02
( -31)
.0 4
( -64)
.05
( -86)

.2 3
(1 .9 7 )

t - 14

.1 6
(1 .3 6 )
.0 9
( .9 9 )

.0 6
( -99)
.0 4
(1 .0 8 )

4 .4 0
(7 .3 1 )

.68
(1 .8 1 )

Constant
R2

.68

.0 7
(1 .4 6 )
.0 4
( -85)
.01
( -29)
- .0 0
( - .0 8 )

t - 13

Sum

Q u arterly Data
Am

AE

.2 9

*

1.16
(2 .4 9 )

.51
(3 .0 1 )

.2 0

t- 1

1.56
(5 .6 9 )

.2 6
(1 .8 5 )

- .0 0

t- 2

1.43
( 3 .5 7 )

- .0 6
(- .4 2 )

.0 0

t-3

1.00
(3 .7 1 )

- .1 3
( - .8 6 )

.1 4

t-4

.4 7
(1 0 2 )

.0 3
( -16)

Sum

5 .6 3
(8 .5 8 )

.61
(1 .5 0 )

.0 9
(1 .8 4 )

.2 7
( 2 .7 9 )

t - 15

Coefficients

.11
(1 .9 6 )

t- 3

t - 12

___________________

SAE

.0 7
( 1 .9 3 )

.08
( .9 2 )
.1 5
(1 .2 8 )
.2 2
(1 .8 6 )

Ae

.3 8
(1 .2 9 )
.3 9

Constant
R2

1.0 9
(1 .1 4 )
.71

S . E.

2 .8 0

S. E.

5.31

D. W .

2 .3 2

D. W .

1.86

N o te: Dependent variable fo r m onthly data is dollar change in personal incom e and for quarterly data it is dollar change in G N P. M onetary
variable ( A ^ ) is Mi for both regressions. Fiscal variable ( ^ E ) is high-em ploym ent Federal expenditures fo r both regressions; monthly
data are linear interpolations o f quarterly data. 2 ’s for m onthly data are m onthly coefficients summed over quarters. Figures in paren­
theses are “ t ” statistics. R 2 is adjusted fo r degrees o f freedom . S. E. is the standard error o f estimate, and D. W . is the D urbin-W atson
statistic.

Total spending — The dependent variable used in
the St. Louis equation is the dollar change in nominal
GNP. No similar comprehensive measure is available
on a monthly basis. As a proxy for GNP on a monthly
basis personal income is used. The rationale under­
lying this choice is that personal income is the most
comprehensive measure of aggregate economic activ­
ity available on a monthly basis. Over the last twenty
years personal income has averaged 79.8 percent of
GNP. It should be noted, however, that personal

Page 16


income leaves much to be desired as a monthly
proxy for GNP, since it excludes depreciation, indi­
rect business taxes, undistributed corporate profits,
and includes transfer payments.
Monetary variable— The choice of a monthly
measure of monetary actions is automatic once a par­
ticular form of the St. Louis equation is chosen. The
quarterly observations on the money stock narrowly
defined are simply the quarterly averages of the

JANUARY 1 9 7 5

F E D E R A L R E S E R V E BANK O F ST. LO UIS

monthly estimates of the seasonally adjusted money
data.
Fiscal variable— With regard to a monthly meas­
ure of fiscal actions, no such measures are available
on a seasonally adjusted basis. Though complex
methods of interpolation could probably be developed
using the Treasury’s “Monthly Statement of Receipts
and Expenditures,” the procedure followed here was
to interpolate linearly between quarterly estimates of
higli-employment Federal expenditures. The quarterly
observations were assumed to be equal to expenditures
for the mid-month of the quarter, and expenditures
for the intervening months were calculated by linear
interpolation.

Results
The estimation proceeded by specifying the same
constraints as used by Andersen-Jordan in their study.
The equation was estimated with ordinary least
squares and the lag structure was estimated by the
Almon lag technique. The polynominal was con­
strained to fourth degree but several lag lengths were
examined. In each case the coefficients on the ( t —
(- 1)
and (t — n) lags were constrained to zero. The
sample period used was 1953 through 1973.
The estimated equations are shown in the accom­
panying table and a visual summary is given in the
accompanying chart. The results for the St. Louis
equation estimated with monthly data are compared
with the quarterly specification. The R- and the stand­
ard error are lower for the monthly specification, and
the Durbin-Watson statistic suggests the presence of
negative autocorrelation in the residuals.
Examination of these results indicates that the
general quarterly pattern of coefficients on the mone­
tary and fiscal variables is reproduced with the
monthly data. The sums of the coefficients for the
monetary and fiscal variables are little different from
those for the quarterly model, though there is some
indication that the monthly data show a smaller total
impact for monetary actions. However, since per­
sonal income is smaller than GNP, the difference
in monetary impact can be interpreted as being at­
tributable to the difference in scale of the dependent
variable.




The pattern of lagged response to monetary action,
is also reproduced with the monthly data. The optimal
lag length, which was determined by estimating with
successively longer lags until the lagged coefficients
trailed off into insignificance, appears to be about 16
months which is consistent with 5 quarters when
estimated with quarterly data. That period, when 50
percent of the monetary impact has occurred, is
roughly the same for the two data sets. The quarterly
model indicates that almost 50 percent of the impact
occurs by the second quarter, which conforms with
the monthly result indicating one-half of the impact
by the eighth month.
The pattern of response to fiscal actions requires
additional comment. Since the monthly fiscal variable
is a linear interpolation of quarterly observations,
reproducing the result of the quarterly model might
not seem surprising.8 The quarterly version of the
St. Louis equation yields a total fiscal multiplier of
0.61 which is not significantly different from zero at
the 5 percent level. However, reproduction of these
quarterly results for the monthly version comes as a
surprise because the dependent variable, personal
income, includes transfer payments which are also
included in the fiscal variable on the right hand
side of the equation. There is some indication of
bias though, because scale considerations alone
would imply a sum fiscal coefficient for the monthly
specification of less than 0.61.

Summary
The St. Louis equation was estimated using monthly
data. Using changes in personal income as the de­
pendent variable rather than changes in GNP, the
results were consistent with those obtained with
quarterly data. Results were presented providing evi­
dence in support of conclusions relating to the magni­
tude and speed of the impact of monetary and fiscal
actions as derived from quarterly data. Use of monthly
data thus appear to carry the potential for evaluating
the thrust of monetary and fiscal actions before quar­
terly data on GNP become available.
8It should be noted that for the monthly version the “ t”
statistics for the fiscal variable are probably biased upward
because the num ber o f independent observations is overstated
as a result o f interpolation.

Page 17

Monetary Effects of the Treasury Sale of Gold
ALBERT E. BURGER

T THE beginning of 1975, it became legal for
U. S. residents to hold gold for the first time in 41
years. In early December, the U. S. Government an­
nounced its intention to offer 2 million ounces of
gold for sale to the public early in January 1975 from
its holdings of 276 million ounces. The Treasury re­
ceived bids for only about one million ounces of gold
and accepted bids for only 753,600 ounces. The gold
was sold at an average price of $165.65 per ounce,
hence the sale added about $125 million to the
revenues of the Treasury.

Table I

SO U RCES O F THE M O N ETA R Y BASE
I. Factors Supplying M onetary Base
Federal Reserve holdings of Government securities1
Loans
Federal Reserve float
Gold stock
account2

plus

Special

Drawing

Rights

certificate

Treasury currency outstanding
O ther Federal Reserve assets
II. Factors Absorbing M onetary Base
Treasury cash holdings

This note illustrates the monetary implications of
this sale of gold to the public. It is assumed that the
Government did not alter its spending plans as a re­
sult of the sale of gold. It is assumed that the Treasury
used the proceeds from the sale of gold to make
expenditures rather than using tax revenues or using
the receipts from the sale of bonds to the public. The
effects of the transactions between the Treasury and
the Federal Reserve are illustrated, and their effects
on the monetary base are discussed. The sources of
the monetary base are shown in Table I.
In the following analysis it does not matter whether
a U. S. resident or a resident of a foreign country
purchased gold sold by the Treasury. In order to
purchase gold at the auction, a foreign individual
must have dollars. Hence, when he pays for the gold,
demand deposits of foreigners at U. S. commercial
banks decrease. Since these deposits are part of the
U. S. money stock, the analysis would be the same
as when demand deposits of U. S. residents decline.

Treasury Monetizes Gold
In early December the U. S. Treasury held about
276 million ounces of gold. Of this total amount, 274
million ounces were held in the General Account of
the Treasury and 2 million ounces were held in the
Exchange Stabilization Fund. Only the 274 million
ounces held in the General Account were counted in
the monetary base. The Treasury had issued gold
certificates to the Federal Reserve Banks against
about 271.5 million ounces of gold, valued at $11.5
Digitized for Page
FRASER
18


Deposits with Federal Reserve Banks
Treasury
Foreign
O ther2
O ther Federal Reserve liab ilitie s and cap ital
III. Reserve Adjustments3
IV. M onetary Base (I — 11

III)

in clu d e s acceptances held.
2On January 1, 1970, the United States received an initial alloca­
tion o f $866.9 m illion o f Special D raw in g R ights (S D R s) from
the International M onetary Fund. The Treasury, through its E x ­
change Stabilization Fund, m onetized $400 m illion o f this alloca­
tion within a few m onths. In m onetizing, the Treasury issued
$400 m illion o f SDRs to the Federal Reserve Banks and in return
received an equal credit to its E xchange Stabilization Fund at
the N ew Y ork Federal Reserve Bank which is included in other
deposits.
3Computed by this Bank. It includes the effects o f reserve require­
m ent changes and shifts in deposits where different reserve
requirements apply.

billion at the official U. S. price of $42.22 per ounce.1
The remaining 4.5 million ounces of gold was held
in the Exchange Stabilization Fund2 and in Treasury
cash3 (2 and 2.5 million ounces, respectively).
U s the Treasury purchased gold in the past, and w hen the
official U. S. price o f gold was changed, the Treasury had
“ m onetized” the gold b y issuing gold certificates to the
Federal Reserve Banks. In return, the Treasury received de­
mand deposits at the Federal Reserve Banks. See, Albert E.
Burger, “ T he Monetary E conom ics o f G old,” this R eview
(January 1 9 7 4), pp. 2-7.
-T h e Exchange Stabilization Fund, administered b y the Treas­
ury, held 2,019,751 ounces o f gold, valued at $85.3 million.
This gold had been acquired by the Fund prior to August 15,
1971, when the Fund engaged from time to time in gold
transactions with foreign monetary authorities and with the
market for the purpose o f stabilizing the value o f the dollar
relative to gold.
:lTreasury cash holdings represent the funds that the Treasury
technically has at its disposal without drawing on its deposits

F E D E R A L R E S E R V E B A N K O F ST. L O U I S

JANUARY 1 9 7 5

Illustration I

Treasu ry M onetizes Previously N onm onetized G o ld
(M illio n s of D ollars)
M onetary Base
Treasury
$1 0 7
monetized
gold

$ 1 0 7 gold
certificates

Federal Reserve
$ 1 0 7 gold
certificates

— 107
Treasury
cash (n o n ­
monetized gold)

$ 1 0 7 Treasury
demand
deposits

Sources

Uses

(~ h )— $107
Treasury
cash
( — )$ 1 0 7
Treasury demand
deposits at F.R.

No change

107 demand
deposits

*Sign in brackets indicates direction of effect on monetary base. For example, a decrease in Treasury cash increases the base (-{-).

In December the Treasury monetized the remaining
4.5 million ounces of gold held in its accounts by
purchasing 2 million ounces from the Exchange
Stabilization Fund and issuing gold certificates
against the entire 4.5 million ounces of gold. In
return, it received deposits at the Federal Reserve
Banks equal to $192 million.

Treasury monetized the gold, is a factor increasing
the monetary base; the rise in demand deposits
of the Treasury at Federal Reserve Banks is a factor
decreasing the monetary base. Therefore, the Treasury
action of issuing gold certificates against the 2.5 mil­
lion ounces of nonmonetized gold in December had
no effect on the monetary base.

The “monetary” or Treasury gold stock of the
United States consists of both the amount of gold
against which gold certificates have been issued and
gold against which no gold certificates have been
issued (nonmonetized gold). Nonmonetized gold is
included in the account “Treasury cash holdings”
which appears as a factor affecting bank reserves
and is included on the sources side of the monetary
base. An increase (decrease) in Treasury cash ab­
sorbs ( releases) bank reserves and hence reduces
(increases) the monetary base.

The 2 million ounces of gold held in the Exchange
Stabilization Fund (E S F ), however, was not pre­
viously included in the gold component of the mone­
tary base. In the sources of the monetary base, “other
deposits” at Federal Reserve Banks included a special
gold account of the Secretary of the Treasury which
included the gold held by the Federal Reserve Bank
of New York for the Exchange Stabilization Fund.
Other deposits also included the special checking
account of the Exchange Stabilization Fund. There­
fore, when the Treasury purchased the 2 million
ounces of gold from the Exchange Stabilization Fund
and issued gold certificates against this amount to the
Federal Reserve Banks, the value of the gold stock in
the monetary base rose by $85 million. In the week
ended December 11 the gold stock of the monetary
base rose by $36 million and then rose by an addi­
tional $49 million in the week ended December 18.

Illustration I shows the effects of the Treasury
monetizing the 2.5 million ounces of previously un­
monetized gold in Treasury cash valued at $107
million.4 In the process of monetizing gold, the Treas­
ury issued gold certificates to the Federal Reserve
Banks, in return for which the Federal Reserve Banks
credited the demand deposits of the Treasury. The
decrease in Treasury cash, which occured as the
at the Federal Reserve or Tax and Loan accounts at com ­
mercial banks. This account includes any currency and coin
held b y the Treasury in its ow n vaults plus nonm onetized
gold and silver bullion, silver dollars, and nonsilver coinage
metal. See Federal Reserve Bank o f N ew York, Glossary:
W eekly F e d e ra l R eserve S tatem ents, “ Factors Affecting Bank
Reserves” (Septem ber 1 9 7 2 ), p. 20.
4T he Treasury held 2,518,006 ounces o f nonm onetized gold
w hich, valued at the official price o f $42.22 an ounce, was
w orth $106.3 million. For exposition purposes this amount
has been rounded up to $107 milhon.




When the Treasury purchased gold from the ESF,
deposits of the ESF at the Federal Reserve rose and
Treasury deposits fell. The gold from the ESF account
was initially transferred into the Treasury’s General
Account holdings of nonmonetized gold, hence the
item Treasury cash rose. When the Treasury issued
gold certificates against the gold it had acquired from
the ESF, the gold became classified as monetized
gold, Treasury cash decreased, and Treasury demand
deposits increased. These transactions are shown in
Illustration II.
Page 19

JANUARY 1 9 7 5

F E D E R A L R E S E R V E BAN K O F ST. LO UI S

Illustration II

Treasu ry Purchases G o ld From Exchange
S ta b iliza tio n Fund and M onetizes the G o ld
(M illio n s of D ollars)
Treasury
Treasury
Purchases Gold
From Exchange
Stab ilization
Fund

$8 5 Treasury
cash (n o n ­
monetized gold)

Federal Reserve

No change

— 85 demand
deposits
— 85 gold due
ESF

Treasury
Monetizes
Gold

— $85 Treasury
demand deposits

( - } - ) — $85 Treasury
demand deposits at F.R.

85 ESF
deposits

( — ) 85 ESF deposits

- 8 5 ESF gold

( — ) $85 Treasury cash

— 85 Treasury
cash
85 monetized
gold

M onetary Base
Sources

Uses

No change

( + ) 85 Gold

( + ) — 85 Treasury
cash
85 gold
certificates

85 gold
certificates

85 Treasury
demand deposits

( — ) 85 Treasury demand
deposits at F.R.

No change

85 demand
deposits
Net Effect
$85 monetized
gold

Net Effect

$85 gold
certificates

$ 8 5 gold
certificates

85 ESF
deposits

Net Effect
( + ) 85 gold

No change

( — ) 85 ESF deposits

*Sign in brackets indicates direction o f effect on monetary base. For example, a rise in Treasury cash decreases the base (—).

These transactions between the Treasury and the
Federal Reserve had no effect on the monetary base
or the money stock. The increase in the gold stock
($85 million) in the monetary base was completely
offset by a corresponding rise in deposits of the Ex­
change Stabilization Fund ($85 million) at the
Federal Reserve. However, since the Treasury issued
gold certificates against the gold it purchased from
the Exchange Stabilization Fund, the amount of gold
certificates held by the Federal Reserve Banks rose by
$85 million.
The combined results of the two steps whereby the
Treasury monetized $192 million of gold are shown
in Illustration III. All the Treasury’s gold holdings
have been monetized, gold certificates held by the

Federal Reserve have risen and Treasury deposits at
the Federal Reserve Banks have increased.

Treasury Sells Gold to Public
As the Treasury received payment from the public
for the gold it sold and deposited these funds in its
accounts at Federal Reserve Banks, the money stock
temporarily decreased. Demand deposits of the public
at commercial banks, which are part of the money
stock, declined; Treasury deposits at Federal Reserve
Banks rose, and bank reserves fell. These effects are
shown in Stage I of Illustration IV.
Since it was assumed that the expenditures of the
Treasury are unaffected by the sale of gold, these

Illustration III

Com bined Results o f Actions Shown in Illustrations I and II
(M illio n s of Dollars)
Treasury
$19 2 monetized
gold

$ 1 9 2 gold
certificates

Federal Reserve
$1 9 2 gold
certificates

— 107 Treasury
cash
107 demand
deposits

1Sign in brackets indicates direction o f effect on monetary base.


Page 20


$ 10 7 Treasury
demand
deposits
85 ESF
deposits

Sources

M onetary Base1
Uses

( + ) $ 85 gold
( H“ ) — 107 Treasury
cash
( — ) 85 ESF
deposits
( — ) 1 0 7 Treasury
demand deposits
at F.R.

No change

JANUARY 1 9 7 5

F E D E R A L R E S E R V E BANK O F ST. L O U IS

These effects are shown in Stage II of Illustration
IV. The money stock returns to its level prior to the
sale of gold.

Illustration IV

Effect on M oney Stock o f Treasury
S a le o f G o ld

The effects of the Treasury sale of gold on the
monetary base are shown in Illustration V. At
the end of December the Treasury held gold in
only one account, 276 million ounces against all
of which gold certificates had been issued. As the
Treasury sold gold to the public in early January,
it had to redeem gold certificates from the Federal
Reserve representing claims of an equal amount.
These gold certificates were redeemed at the official
U. S. price of gold ($42.22 an ounce). Hence, the
Treasury paid the Federal Reserve about $32 million
to redeem gold certificates representing claims on
753,600 ounces of gold. This transaction had no effect
on the money stock or the monetary base. Treasury
deposits at Federal Reserve Banks decreased by $32
million and the amount of gold in the monetary base
(which is valued at the official U. S. price of gold)
declined by $32 million. These effects are shown in
the upper third of Illustration V.

(M illio n s of Dollars)
Stage 1

Stage II

Treasury Sells Gold

Treasury M akes Payments
to the Public
Federa

Federal Reserve

-$125
Treasury
deposits at
Federal Reserve
Banks

— $12 5
member bank
deposits at
Federal
Reserve Banks

$1 25
member bank
deposits at
Federal Reserve
Banks
Banks

Banks
— $125
member bank
deposits at
the Federal
Reserve
Banks

Reserve

$1 25
Treasury
deposits at
Federal Reserve
Banks

— $125
demand
deposits
of the public

$125
member bank
deposits at
the Federal
Reserve
Banks

$1 25
demand
deposits
of the public

transactions will be reversed shortly. The Treasury
makes payments for goods and services and makes
transfer payments by writing checks drawn on its
deposits at the Federal Reserve Banks. Therefore, as
the Treasury makes expenditures, Treasury deposits
at the Federal Reserve Banks decrease, demand de­
posits of the public rise, and bank reserves increase.

As the Treasury received payment from the public
for the gold, Treasury deposits at Federal Reserve
Banks rose by $125 million. These effects are shown
in the middle of Illustration V. When the Treas­
ury spent the proceeds from the sale of gold, these
transactions were reversed; demand deposits of the
Treasury at Federal Reserve Banks fell by $125

Illustration V

Treasu ry Sells G o ld to the Public and Redeems
G o ld C ertificates a t Federal Reserve Banks
(M illio n s

Treasury
Treasury Redeems
Gold Certificates

— $32 mone­
tized gold

— $32 gold
certificates

— 32 demand
deposits

— 32 net
worth

125 demand
deposits

1 25 net
worth

Treasury Receives
Payment for Gold

of

D o llars)

Federal Reserve
— $ 32 gold
certificates

No change

— $32 Treasury
demand deposits

125 Treasury
demand
deposits

M onetary B ase1
Sources
Uses
— $ 32 gold
( + ) — 32 Treasury
demand deposits
at F.R.

No change

( — ) 1 25 Treasury
demand deposits
at F.R.

— 1 25 member
bank deposits
at F.R.

( " h ) — 125 Treasury
demand deposits
at F.R.

1 25 member
bank deposits
at F.R.

— 125 member
bank deposits
Treasury Purchases
Goods and Services
with Proceeds of
Gold Sale

— 125 demand
deposits

No change

No change

125 goods
and services

— 125 Treasury
demand deposits
. 0c ,
.
125 demand
deposits of
member banks

1Sign in brackets indicates direction o f effect on monetary base.




Page 21

F E D E R A L R E S E R V E BAN K O F ST. LO UI S

JANUARY 1 9 7 5

Illustration VI

Summary o f Effects o f G o ld Transaction s on the M onetary Base
(M illio n s of D ollars)
M onetary Base
Treasury
$ 1 6 0 monetized
gold

$1 60 gold
certificates

Federal Reserve
$1 60 gold
certificates

75 demand
deposits

85 ESF
deposits

— 107 Treasury
cash
125 goods
and services

$75 Treasury
demand
deposits

93 net
worth

Sources

Uses

( + ) $ 5 3 gold
( — ) 75 Treasury
demand deposits
at F.R.
(-}■ )— 107 Treasury
cash

No change

{ — )8 5 ESF
deposits

■Sign in brackets indicates direction o f effect on m onetary base.

million and deposits of member banks at the Federal
Reserve Banks rose by $125 million, as shown in the
lower third of Illustration V.
Illustration VI depicts the final effect on the
monetary base, after the Treasury had monetized
4.5 million ounces of gold, sold about 750,000 ounces
of gold to the public, and spent the proceeds from
the sale of gold ($125 million). Gold in the mone­
tary base rose by $53 million, equal to the transfer
of gold from the ESF ($85 million) less the official
dollar amount sold to the public ($32 million).
Treasury cash decreased by $107 million reflecting
the decrease in nonmonetized gold. ESF deposits
(included in “other deposits” ) rose by $85 million,
reflecting the purchase of gold from the ESF by the
Treasury.
The Treasury experienced an increase in net worth
because it sold gold, valued on its accounts at $42.22

Digitized for Page
FRASER
22


an ounce, to the public at an average price of $165.65
an ounce. Gold holdings of the Treasury, as valued
in Treasury accounts, decreased by $32 million, but
the Treasury received $125 million from the public.
Hence, the Treasury had a gain in net worth of $93
million.
One important item to note in the final result for
the monetary base is that Treasury demand deposits
at the Federal Reserve Banks are $75 million higher
even after it has spent the proceeds from the sale of
gold. The Treasury received $192 million in deposits
at Federal Reserve Banks as a result of monetizing
4.5 million ounces of gold. It spent $85 million to pay
for the gold it acquired from the Exchange Stabiliza­
tion Fund and $32 million to retire gold certificates
as a result of the sale of gold. When the Treasury
spends the balance of the proceeds from monetizing
gold ($75 million) the monetary base will increase
by this amount.

F E D E R A L R E S E R V E BANK O F ST. L OUI S

JANUARY 1 9 7 5

Publications of This Bank Include:
Weekly

U. S. FINANCIAL DATA

Monthly

REVIEW
MONETARY TRENDS
NATIONAL ECONOMIC TRENDS

Quarterly

SELECTED ECONOMIC INDICATORS - CENTRAL
MISSISSIPPI VALLEY
FEDERAL RUDGET TRENDS
U. S. RALANCE OF PAYMENTS TRENDS

Annually

ANNUAL U. S ECONOMIC DATA
RATES OF CHANGE IN ECONOMIC DATA
FOR TEN INDUSTRIAL COUNTRIES
(QUARTERLY SUPPLEMENT)

Single copies of these publications are available to the public without charge.
For information write: Research Department, Federal Reserve Rank of St. Louis,
P. O. Box 442, St. Louis, Missouri 63166.




Page 23