Full text of Monetary Trends : April 2000
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April 2000 MonetaryTrends 30-Year Bond Faces Uncertain Future Market yields on intermediate- and long-term U.S. Government securities, especially the 30-year bond, declined sharply between mid-January and late February 2000. Yields on securities of 10-30 years maturity also fell below those on intermediate-term securities. The decline in yields might signal a decline in expected inflation, as lower inflation makes fixed-income securities more attractive to investors. The decline in yields on longterm securities below those on shorter-term securities also could reflect market expectations that the pace of economic activity will slow, as many forecasters now predict. Alternatively, the decline in yields might be related to an announcement by the Department of the Treasury of a plan to reduce the average maturity of outstanding U.S. Government debt, which would reduce the expected supply of such securities. Pension funds, and other investors with long-term commitments, buy intermediateand long-term U.S. Government and other securities to hedge future liabilities. Thus, the recent decline in yields might reflect market purchases in anticipation of a reduction in future supply of such securities. Yield spreads between conventional and inflationprotected Treasury securities (TIPS) offer one clue of the public’s inflation expectations, and might help untangle the reasons for the decline in market yields. Other things being equal, a decline in the market yield on a conventional security, relative to the yield on an inflation-protected security of similar maturity, would indicate that expected inflation had fallen. The chart shows that during the last two weeks of January and during February, the spread between 30-year conventional securities and TIPS fell substantially, possibly indicating a decline in expected inflation. Yield spreads for 5- and 10-year securities, however, did not decline– in fact, the spread for 5-year securities increased. Moreover, throughout February, the yield spread for 30-year securities was smaller than those for 5-and 10year securities–a phenomenon that had not previously occurred since 30-year TIPS were first issued in April 1998 (see chart on page 11). The divergence of TIPS and conventional security yields across securities of different maturity suggests that the recent behavior of government security prices, especially the price of the 30-year bond, has not been dominated by changes in inflation expectations. It seems doubtful that market expectations of inflation over a 30-year horizon would have declined while expected inflation during the next 10 years stayed the same or even increased. The coincidence of large declines in market yields on conventional Treasury securities, especially the 30-year bond, with the Treasury Department’s announcement on February 2 of a planned reduction in the issuance of intermediate and long-term securities, and the repurchase of parts of some outstanding issues, suggests further that yield changes have been driven more by changes in expected supply than by demand. Thus, while bond yields in general reflect market expectations about inflation and economic activity, they also can–at least in the short run–reflect purely idiosyncratic changes in market demand or supply. —David C. Wheelock Views expressed do not necessarily reflect official positions of the Federal Reserve System. TableofContents Page 3 Monetary and Financial Indicators at a Glance 4-5 Monetary Aggregates and Their Components 6 Monetary Aggregates: Monthly Growth 7 Reserves Markets and Short-Term Credit Flows 8 Measures of Expected Inflation 9 Interest Rates 10 Policy-Based Inflation Indicators 11 Implied Forward Rates, Futures Contracts, and Inflation-Protected Securities 12-13 Velocity, Gross Domestic Product, and M2 14 Bank Credit 15 Stock Market Index, and Foreign Inflation and Interest Rates 16-18 Reference Tables 18-20 Definitions, Notes, and Sources Conventions used in this publication: 1. Unless otherwise indicated, data are monthly. 2. Shaded areas indicate recessions, as dated by the National Bureau of Economic Research. 3. The percent change at an annual rate is the simple, not compounded, monthly percent change multiplied by 12. For example, using consecutive months, the percent change at an annual rate in x between month t-1 and the current month t is: [(x t / x t-1) - 1] x 1200. Note that this differs from National Economic Trends. In that publication monthly percent changes are compounded and expressed as annual growth rates. 4. The percent change from year ago refers to the percent change from the same period in the previous year. For example, the percent change from year ago in x between month t-12 and the current month t is: [(x t / x t-12) - 1] x 100. We welcome your comments addressed to: Editor, Monetary Trends Research Division Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, MO 63166 or to: webmaster@stls.frb.org Monetary Trends is published monthly by the Research Division of the Federal Reserve Bank of St. Louis. Single-copy subscriptions are available free of charge by writing Public Affairs Office, Federal Reserve Bank of St. Louis, Post Office Box 442, St. Louis, MO 63166-0442 or by calling (314) 444-8808 or (314) 444-8809. Subscription forms can also be filled out electronically at http://www.stls.frb.org/research/order/pubform.html. For more information on data, please call (314) 444-8590. Information in this publication is also included in the Federal Reserve Economic Data (FRED) electronic bulletin board at (314) 621-1824 or internet World Wide Web server at http://www.stls.frb.org/fred. The entire publication is also available electronically at http://www.stls.frb.org/publications/mt. Special Insert - Page 1 Revisions to Monetary Trends Page 8, Inflation and Inflation Expectations: Through 1999, shaded areas in this chart show expected annual (Q4/Q4) ranges for CPI inflation as delivered to Congress by the Federal Reserve in the February Humphrey-Hawkins Act testimony each year. No range is shown for 2000 because, in Chairman Greenspan’s February 17, 2000 testimony, expected inflation was stated in terms of the personal consumption expenditure (PCE) price index rather than the CPI. For a chart of the PCE deflator, see page 10. For further discussion, see <www.federalreserve.gov/boarddocs/hh/2000/February/FullReport.htm>. Page 10, Federal Funds Rate and Inflation Targets, Actual and Potential GDP, and Actual PCE Inflation: These charts have been revised to use the PCE price index (rather than the CPI) and recently released revisions to GDP. In its most-recent Humphrey-Hawkins Act testimony, the Federal Reserve stated its expectation for inflation during 2000 in terms of the PCE price index. The GDP data reflect benchmark revisions published during October 1999 by the Bureau of Economic Analysis <www.bea.doc.gov/bea/newsrel/gdp399a.htm>, and recent revisions by the Congressional Budget Office to its estimates of potential real output <www.cbo.gov>. The chart at the top of page 10 in Monetary Trends contains six lines. One line is the actual quarterly average level of the federal funds rate. The others show, for the alternative target annual (same quarter a year earlier) inflation rates π * = 0, 1, 2, 3, 4%, suggested settings for the policy-target federal funds rate, f * , calculated according to the equation: f * = r* + π t −1 + 0.5 (π t −1 − π * ) + 0.5Yt −1 , where r* is the level of a short-term real interest rate assumed to be consistent with inflation equal to its target and real output equal to potential; π t -1 is the previous period's inflation rate; and Yt -1 is the GDP gap, expressed as a percentage of potential GDP, that is, as 100 × (log(real GDP) – log(potential real GDP)). Potential real output is as estimated by the Congressional Budget Office. The coefficients are those suggested by Taylor (1993). Prior to this issue of Monetary Trends, the equation was plotted for r* = 2%. Because the PCE price index has increased approximately one-half percentage point less rapidly than the CPI during the last several years, we have changed r* to 2.5%. Figures comparing alternative price indexes and GDP data are shown on the next page. A table containing the data used to construct these charts is shown on the third page of this special insert. Special Insert - Page 2 Price Indexes Percent change from a year ago 7 6 5 CPI 4 3 2 GDP Price Index 1 PCE Price Index 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 GDP and Potential Output Real Potential Output Gross Domestic Product Billions Billions 10000 10000 9000 9000 8000 CBO (2000) revised measure, in chained 1996$ 8000 7000 6000 BEA revised measure (11/1999), in 1996$ 7000 CBO (1995) previous measure, in chained 1992$ 5000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 BEA previous measure, in 1992$ 6000 5000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 GDP and Potential Output GDP and Potential Output Previously published series, billions of chained 1992$ Revised series, billions of chained 1996$ 10000 10000 9000 9000 8000 GDP 8000 Potential Output GDP 7000 Potential Output 7000 6000 6000 5000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 5000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 MonetaryTrends 03/20/00 M2 and MZM Reserve Market Rates Billions of $ 5000 Percent 6.25 Effective Federal Funds Rate Expected Federal Funds Rate 5% 4750 1% 6.00 5% 4500 5.75 1% M2 4250 5.50 4000 5.25 3750 5.00 3500 4.75 MZM 3250 Discount Rate 4.50 3000 4.25 1997 1998 1999 2000 1997 1998 1999 2000 Dotted lines indicate the FOMC target ranges. Adjusted Monetary Base Treasury Yield Curve Percent change at an annual rate 50 Percent 7.75 Week ending: 03/19/99 02/18/00 7.25 03/17/00 40 30 6.75 20 6.25 10 5.75 0 5.25 -10 4.75 -20 -30 4.25 1997 1998 1999 2000 3m1y 2y 3y 5y 7y 10y 20y 30y Total Bank Credit Interest Rates Percent change at an annual rate 50 Jan 00 Feb 00 Federal Funds Rate 5.30 5.45 5.73 Discount Rate 5.00 5.00 5.24 Prime Rate 8.50 8.50 8.73 Conventional Mortgage Rate 7.91 8.21 Dec 99 40 . 30 Treasury Yields Treasury Yields: 20 10 0 -10 1997 1998 1999 . . 8.33 . . . 3-month constant maturity 5.36 5.50 5.73 6-month constant maturity 5.68 5.76 6.00 1-year constant maturity 5.84 6.12 6.22 3-year constant maturity 6.14 6.49 6.65 5-year constant maturity 6.19 6.58 6.68 10-year constant maturity 6.28 6.66 6.52 30-year constant maturity 6.35 6.63 6.23 2000 Federal Reserve Bank of St. Louis MonetaryTrends 03/20/00 MZM and M1 Percent change from year ago 20 15 MZM 10 5 0 M1 -5 -10 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 88 89 90 91 92 93 94 95 96 97 98 99 00 89 90 91 92 93 94 95 96 97 98 99 00 M2 Percent change from year ago 15 10 5 0 -5 83 84 85 Dotted lines indicate the FOMC target ranges. M3 Percent change from year ago 15 10 5 0 -5 83 84 85 86 87 Dotted lines indicate the FOMC target ranges. Monetary Services Index - M2 Percent change from year ago 15 10 5 0 -5 83 84 85 86 87 88 Federal Reserve Bank of St. Louis MonetaryTrends 03/20/00 Adjusted Monetary Base Percent change from year ago 20 15 10 5 0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 Domestic Nonfinancial Debt Currency Held by the Nonbank Public Percent change from year ago Percent change from year ago 15 15 Federal 10 10 5 Total 5 0 -5 0 1993 1994 1995 1996 1997 1998 1999 2000 1997 1998 1999 Time Deposits Checkable and Savings Deposits Percent change from year ago Percent change from year ago 25 20 20 15 15 10 Large Denomination 10 Savings 5 5 0 0 -5 Small Denomination -5 Checkable -10 -10 -15 1997 1998 1999 2000 Money Market Mutual Fund Shares 1997 1998 1999 2000 Repurchase Agreements and Eurodollars Percent change from year ago Billions of dollars 40 35 2000 Billions of dollars 350 Institutional funds 300 300 250 30 Repos (left) 25 250 20 Retail funds 200 200 150 15 Eurodollars (right) 10 150 1997 1998 1999 2000 100 1997 Federal Reserve Bank of St. Louis 1998 1999 2000 MonetaryTrends 03/20/00 M1 Percent change at an annual rate 40 30 20 10 0 -10 -20 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 87 88 89 90 91 92 93 94 95 96 97 98 99 00 87 88 89 90 91 92 93 94 95 96 97 98 99 00 87 88 89 90 91 92 93 94 95 96 97 98 99 00 MZM Percent change at an annual rate 40 30 20 10 0 -10 -20 83 84 85 86 M2 Percent change at an annual rate 40 30 20 10 0 -10 83 84 85 86 M3 Percent change at an annual rate 40 30 20 10 0 -10 83 84 85 86 Federal Reserve Bank of St. Louis MonetaryTrends 03/20/00 Adjusted and Required Reserves Billions of $ 100 80 Adjusted 60 40 Required 20 0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 Total Borrowings, nsa Excess Reserves plus RCB Contracts Billions of $ Billions of $ 0.8 12 0.6 10 0.4 8 0.2 6 0.0 4 1993 1994 1995 1996 1997 1998 1999 2000 1993 1994 1995 1996 1997 1998 1999 Nonfinancial Commercial Paper Percent change from year ago 60 40 20 0 -20 -40 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 Consumer Credit Percent change from year ago 20 15 10 5 0 -5 -10 83 84 85 Federal Reserve Bank of St. Louis 2000 MonetaryTrends 03/20/00 Inflation and Inflation Expectations Percent 10 8 Federal Reserve Bank of Philadelphia 6 CPI inflation Humphrey-Hawkins CPI inflation range 4 2 University of Michigan 0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 The shaded region shows the Humphrey-Hawkins CPI inflation range. Beginning in January 2000, the Humphrey-Hawkins inflation range was reported using the PCE price index and therefore is not shown on this graph . See page 19 for information. Treasury Security Yield Spreads Yield to maturity 6 30 year - 3 month 4 2 0 -2 3 year - 3 month 30 year - 3 year 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 98 99 00 Real Interest Rates Percent, Real rate = Nominal rate less CPI inflation 8 6 1-year Treasury Yield 4 2 Federal Funds Rate 0 -2 83 84 85 86 87 88 89 90 91 92 93 94 95 Federal Reserve Bank of St. Louis 96 97 01 MonetaryTrends 03/20/00 Short Term Interest Rates Percent 14 12 90-day Commercial Paper 10 8 Prime Rate 6 3-month Treasury Yield 4 2 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 97 98 99 00 Long Term Interest Rates Percent 16 14 Conventional mortgage 12 10 8 Corporate Aaa 6 4 30-year Treasury Yield 83 84 85 86 87 88 89 90 91 92 Long Term Interest Rates 93 95 96 Short Term Interest Rates Percent Percent 9 9 8 8 Corporate Baa 7 7 30-year Treasury Yield 6 5 94 6 5 10-year Treasury Yield 4 90-day Commercial Paper 3-month Treasury Yield 4 1997 1998 1999 2000 1997 1998 1999 2000 FOMC Expected Federal Funds Rate and Discount Rate Percent 12 10 Federal Funds Rate 8 6 Discount Rate 4 2 83 84 85 86 87 88 89 90 91 92 93 94 95 Federal Reserve Bank of St. Louis 96 97 98 99 00 MonetaryTrends 03/20/00 Federal Funds Rate and Inflation Targets Percent 12 4% 3% 2% 1% 0% Target Inflation Rates 9 6 3 Actual 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Calculated federal funds rate is based on Taylor’s rule. See notes on page 19. Actual and Potential Real GDP PCE Inflation Billions of chain-weighted 1996 dollars Percent change from year ago 9500 6 9000 5 8500 4 8000 Potential 3 7500 2 7000 Actual 6500 1 6000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Monetary Base Growth* and Inflation Targets Percent 12 Actual (2-year moving average) 9 6 3 0% 1% 2% 3% 4% Target Inflation Rates 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 *Modified for the effects of sweeps programs on reserve demand. Calculated base growth is based on McCallum’s rule. See notes on page 19. Monetary Base Velocity Growth Real Output Growth Percent Percent 4 8 Actual 0 -4 10-year moving average 4 0 4-year moving average Actual -8 -4 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Federal Reserve Bank of St. Louis MonetaryTrends 03/20/00 Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent Percent, daily data 10 6.6 9 8 Week ending: 03/19/99 02/18/00 03/17/00 May 2000 6.5 7 6.4 6 6.3 Apr 2000 Mar 2000 5 6.2 4 3 2y3y 5y 7y 10y 20y 30y 6.1 01/17 01/24 01/31 02/07 02/14 02/21 02/28 03/06 03/13 03/20 Rates on Selected Fed Funds Futures Contracts Implied Yields on Fed Funds Futures Percent, daily data Percent 6.2 6.5 May 2000 6.1 6.4 3/17/2000 6.3 2/11/2000 6.2 6.0 Apr 2000 6.1 1/14/2000 6.0 5.9 Mar 2000 5.8 5.9 5.8 01/17 01/24 01/31 02/07 02/14 02/21 02/28 03/06 03/13 03/20 Mar Apr May Jun Jul Aug Inflation-Protected Treasury Yields Inflation-Protected Treasury Yield Spreads Percent, weekly data Percent, weekly data 4.5 4 10-year 3 4.0 30-year 2 5-year 30-year 3.5 5-year 1 10-year 3.0 0 1997 1998 1999 2000 1997 1998 1999 2000 Inflation-Indexed 30-Year Bonds Inflation-Indexed 10-Year Bonds Percent, weekly data Percent, weekly data 6 6 5 5 Canada 4 US 4 UK 3 US 3 2 UK 2 1 1 1996 1997 1998 1999 2000 1996 Federal Reserve Bank of St. Louis 1997 1998 1999 2000 MonetaryTrends 03/20/00 MZM Velocity and Opportunity Cost Velocity = Nominal GDP / MZM Opportunity Cost = 3 month T-bill rate less MZM own rate 10.0 3.5 3.0 7.5 Velocity 2.5 5.0 2.0 2.5 Opportunity Cost 1.5 0.0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 M2 Velocity and Opportunity Cost Velocity = Nominal GDP / M2 Opportunity Cost = Treasury rate less M2 own rate 2.25 10.0 Velocity 2.00 7.5 1.75 5.0 Opportunity Cost (5-yr T-bond) 1.50 2.5 Opportunity Cost (3-mo T-bill) 1.25 0.0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 M2, MZM and Nominal GDP Billions of $ 10000 Nominal GDP 8000 6000 M2 4000 MZM 2000 0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 97 98 99 00 Interest Rates Percent 20 15 10 5-yr bond M2 own 5 3-mo bill MZM own 0 83 84 85 86 87 88 89 90 91 92 93 94 95 Federal Reserve Bank of St. Louis 96 MonetaryTrends 03/20/00 Gross Domestic Product Percent change from year ago 20 15 10 5 0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 88 89 90 91 92 93 94 95 96 97 98 99 Real Gross Domestic Product Percent change from year ago 15 10 5 0 -5 82 83 84 85 86 87 Gross Domestic Product Price Index Percent change from year ago 20 15 10 5 0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 M2 Percent change from year ago 20 15 10 5 0 82 83 84 Dashed lines indicate 10-year moving averages Federal Reserve Bank of St. Louis MonetaryTrends 03/20/00 Bank Credit Percent change from year ago 20 15 10 5 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1998 1999 2000 1997 1998 1999 2000 1997 1998 1999 2000 Investment Securities in Bank Credit at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1991 1992 1993 1994 1995 1996 1997 Total Loans and Leases in Bank Credit at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1991 1992 1993 1994 1995 1996 Commercial and Industrial Loans at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1991 1992 1993 1994 1995 1996 Federal Reserve Bank of St. Louis MonetaryTrends 03/20/00 Standard and Poor’s 500 1600 48 1400 42 1200 36 1000 30 Price/earnings ratio (right) 800 24 600 18 400 12 Composite Index (left) 200 6 0 0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 Inflation and Long-Term Interest Rates Trend in Consumer Price Inflation Rates Recent Long-Term Government Bond Rates Percent change from year ago 1999Q1 Jan00 Feb00 1.73 2.09 2.26 2.56 6.42 6.63 6.81 6.49 Canada 0.80 1.59 2.18 2.36 6.15 6.22 6.48 6.19 France 0.26 0.36 0.53 1.00 5.66 5.81 6.11 5.96 Germany 0.26 0.48 0.64 0.96 5.04 5.15 5.54 5.51 Italy 1.39 1.44 1.72 2.06 5.29 5.40 5.79 5.77 -0.10 -0.22 0.07 -1.04 1.81 1.74 1.71 1.84 2.20 1.42 1.17 1.47 5.28 5.38 5.82 5.62 United Kingdom 1999Q3 1999Q4 Percent United States Japan 1999Q2 Nov99 Dec99 Inflation and Long-Term Interest Rates Differentials Percent 3 Inflation differential = Foreign inflation less U.S. Inflation Long-term rate differential = Foreign rate less U.S. rate Percent 3 U.K. Germany 0 Canada Canada 0 U.K. Germany Japan -3 -3 -6 -6 Japan 1997 1998 1999 2000 1997 Federal Reserve Bank of St. Louis 1998 1999 2000 MonetaryTrends 03/20/00 Money Stock M1 Bank MZM M2 M3 Credit Monetary Base Reserves MSI M2 1995 . 1143.037 2906.093 3575.434 4500.288 3500.434 443.499 76.838 210.451 1996 . 1106.428 3096.347 3747.395 4796.863 3683.251 455.572 73.401 217.848 1997 . 1069.928 3318.613 3931.933 5179.573 3951.492 478.708 68.873 227.070 1998 . 1080.851 3705.090 4221.490 5710.897 4323.846 508.942 66.925 242.228 1999 . 1102.446 4157.563 4538.437 6208.620 4580.674 557.863 71.648 258.535 1997 1 1076.355 3222.658 3850.581 5013.301 3829.781 470.011 70.393 222.860 . 2 1065.335 3275.272 3897.351 5112.773 3910.574 473.856 68.137 225.233 . 3 1069.092 3349.688 3959.375 5235.401 3990.927 480.885 68.504 228.457 . 4 1068.930 3426.834 4020.424 5356.815 4074.686 490.081 68.456 231.730 1998 1 1076.718 3523.710 4097.751 5498.386 4188.340 498.320 67.645 235.917 . 2 1078.686 3637.300 4176.066 5638.533 4244.136 502.020 66.044 239.943 . 3 1076.071 3746.116 4249.253 5763.384 4341.108 511.546 66.905 243.733 . 4 1091.927 3913.233 4362.888 5943.284 4521.801 523.881 67.105 249.320 1999 1 1097.220 4033.485 4444.488 6064.827 4515.471 536.335 67.691 253.370 . 2 1103.061 4127.357 4511.460 6155.764 4519.880 545.912 66.526 257.007 . 3 1098.074 4198.569 4570.573 6231.278 4580.340 557.969 68.112 260.270 . 4 1111.430 4270.841 4627.226 6382.612 4707.006 591.238 84.263 263.493 1998 Feb 1076.110 3522.418 4098.736 5487.458 4187.377 499.490 67.349 235.960 1080.319 3563.019 4128.581 5556.968 4218.715 499.342 66.736 237.550 . Mar . Apr 1081.657 3601.717 4152.912 5594.709 4223.704 499.537 65.937 238.890 . May 1076.489 3637.081 4174.983 5638.310 4241.946 502.322 66.071 239.820 . Jun 1077.912 3673.103 4200.304 5682.580 4266.759 504.200 66.125 241.120 . Jul 1076.877 3700.662 4218.927 5703.551 4285.776 507.618 66.307 242.270 . Aug 1073.126 3739.452 4242.999 5762.211 4344.278 511.031 67.371 243.440 . Sep 1078.211 3798.233 4285.832 5824.390 4393.269 515.990 67.036 245.490 . Oct 1084.671 3860.123 4327.305 5887.775 4489.640 520.806 67.058 247.530 . Nov 1093.735 3915.841 4364.342 5945.154 4528.596 524.379 67.182 249.420 . Dec 1097.375 3963.734 4397.018 5996.923 4547.167 526.458 67.074 251.010 1999 Jan 1095.980 3998.710 4422.360 6028.749 4535.709 531.761 68.517 252.260 . Feb 1094.290 4039.737 4447.669 6077.971 4519.976 538.190 68.067 253.460 . Mar 1101.391 4062.008 4463.435 6087.761 4490.727 539.053 66.488 254.390 . Apr 1107.226 4099.557 4490.355 6123.735 4498.972 539.609 64.109 255.900 . May 1101.751 4129.187 4513.053 6156.255 4508.375 548.331 68.424 257.080 . Jun 1100.206 4153.327 4530.973 6187.303 4552.294 549.797 67.046 258.040 . Jul 1099.569 4177.179 4552.715 6210.837 4550.105 553.061 66.882 259.230 . Aug 1098.668 4200.217 4569.938 6228.405 4583.356 556.713 67.249 260.230 . Sep 1095.985 4218.310 4589.066 6254.592 4607.559 564.133 70.206 261.350 . Oct 1101.146 4240.711 4605.250 6302.528 4636.927 572.986 73.315 262.260 . Nov 1109.359 4267.261 4624.240 6378.045 4702.869 588.662 83.810 263.330 . Dec 1123.784 4304.550 4652.188 6467.263 4781.223 612.065 95.665 264.890 2000 Jan 1120.873 4337.569 4675.248 6511.005 4788.221 604.798 80.633 266.060 . Feb 1105.036 4334.615 4683.702 6533.592 4809.964 589.772 68.323 266.430 *All values are given in billions of dollars Federal Reserve Bank of St. Louis MonetaryTrends 03/20/00 Federal Discount Prime Funds Rate Rate 1995 . 5.84 5.21 8.83 1996 . 5.30 5.02 8.27 1997 . 5.46 5.00 1998 . 5.35 1999 . 3-mo CDs Treasury Yields Corporate S&L Conventional 3 mo 3 yr 30 yr Aaa Bonds Aaa Bonds Mortgage 5.92 5.66 6.26 6.88 7.59 5.80 7.95 5.39 5.15 5.99 6.70 7.37 5.52 7.80 8.44 5.62 5.20 6.10 6.61 7.26 5.32 7.60 4.92 8.35 5.47 4.91 5.14 5.58 6.53 4.93 6.94 4.97 4.62 7.99 5.33 4.78 5.49 5.87 7.04 5.28 7.43 1997 1 5.28 5.00 8.27 5.44 5.20 6.19 6.82 7.43 5.44 7.79 . 2 5.52 5.00 8.50 5.69 5.19 6.42 6.93 7.57 5.49 7.93 . 3 5.53 5.00 8.50 5.60 5.18 6.01 6.53 7.17 5.23 7.47 . 4 5.51 5.00 8.50 5.73 5.23 5.78 6.14 6.88 5.14 7.20 1998 1 5.52 5.00 8.50 5.55 5.19 5.46 5.88 6.67 4.94 7.05 . 2 5.50 5.00 8.50 5.59 5.11 5.57 5.85 6.64 5.00 7.09 . 3 5.53 5.00 8.50 5.53 4.96 5.11 5.47 6.49 4.95 6.87 . 4 4.86 4.66 7.92 5.20 4.37 4.41 5.11 6.33 4.82 6.76 1999 1 4.73 4.50 7.75 4.90 4.53 4.87 5.37 6.42 4.87 6.88 . 2 4.75 4.50 7.75 4.98 4.59 5.35 5.80 6.93 5.05 7.20 . 3 5.09 4.60 8.10 5.38 4.79 5.71 6.04 7.33 5.42 7.80 . 4 5.31 4.87 8.37 6.06 5.20 6.00 6.25 7.49 5.79 7.83 1998 Feb 5.51 5.00 8.50 5.54 5.23 5.43 5.89 6.67 4.92 7.04 Mar 5.49 5.00 8.50 5.58 5.16 5.57 5.95 6.72 5.03 7.13 . Apr 5.45 5.00 8.50 5.58 5.08 5.58 5.92 6.69 5.00 7.14 . May 5.49 5.00 8.50 5.59 5.14 5.61 5.93 6.69 5.04 7.14 . Jun 5.56 5.00 8.50 5.60 5.12 5.52 5.70 6.53 4.97 7.00 . Jul 5.54 5.00 8.50 5.59 5.09 5.47 5.68 6.55 5.01 6.95 . Aug 5.55 5.00 8.50 5.58 5.04 5.24 5.54 6.52 5.01 6.92 . Sep 5.51 5.00 8.49 5.41 4.74 4.62 5.20 6.40 4.84 6.72 . Oct 5.07 4.86 8.12 5.21 4.07 4.18 5.01 6.37 4.76 6.71 . Nov 4.83 4.63 7.89 5.24 4.53 4.57 5.25 6.41 4.87 6.87 . Dec 4.68 4.50 7.75 5.14 4.50 4.48 5.06 6.22 4.83 6.72 1999 Jan 4.63 4.50 7.75 4.89 4.45 4.61 5.16 6.24 4.85 6.79 . Feb 4.76 4.50 7.75 4.90 4.56 4.90 5.37 6.40 4.80 6.81 . Mar 4.81 4.50 7.75 4.91 4.57 5.11 5.58 6.62 4.96 7.04 . Apr 4.74 4.50 7.75 4.88 4.41 5.03 5.55 6.64 4.89 6.92 . May 4.74 4.50 7.75 4.92 4.63 5.33 5.81 6.93 5.05 7.15 . Jun 4.76 4.50 7.75 5.13 4.72 5.70 6.04 7.23 5.22 7.55 . Jul 4.99 4.50 8.00 5.24 4.69 5.62 5.98 7.19 5.24 7.63 . Aug 5.07 4.56 8.06 5.41 4.87 5.77 6.07 7.40 5.47 7.94 . Sep 5.22 4.75 8.25 5.50 4.82 5.75 6.07 7.39 5.56 7.82 . Oct 5.20 4.75 8.25 6.13 5.02 5.94 6.26 7.55 5.78 7.85 . Nov 5.42 4.86 8.37 6.00 5.23 5.92 6.15 7.36 5.77 7.74 . Dec 5.30 5.00 8.50 6.05 5.36 6.14 6.35 7.55 5.82 7.91 2000 Jan 5.45 5.00 8.50 5.95 5.50 6.49 6.63 7.78 5.91 8.21 . Feb 5.73 5.24 8.73 6.01 5.73 6.65 6.23 7.68 5.88 8.33 . *All values are given as a percent at an annual rate Federal Reserve Bank of St. Louis MonetaryTrends M1 MZM 03/20/00 M2 M3 Percent change from previous period 1995 . -0.21 -0.46 2.06 4.56 1996 . -3.20 6.55 4.81 6.59 1997 . -3.30 7.18 4.92 7.98 1998 . 1.02 11.65 7.36 10.26 1999 . 2.00 12.21 7.51 8.72 1997 1 -0.53 1.79 1.19 1.90 . 2 -1.02 1.63 1.21 1.98 . 3 0.35 2.27 1.59 2.40 . 4 -0.02 2.30 1.54 2.32 1998 1 0.73 2.83 1.92 2.64 . 2 0.18 3.22 1.91 2.55 . 3 -0.24 2.99 1.75 2.21 . 4 1.47 4.46 2.67 3.12 1999 1 0.48 3.07 1.87 2.05 . 2 0.53 2.33 1.51 1.50 . 3 -0.45 1.73 1.31 1.23 . 4 1.22 1.72 1.24 2.43 1998 Feb 0.22 1.05 0.81 0.67 0.39 1.15 0.73 1.27 . Mar . Apr 0.12 1.09 0.59 0.68 . May -0.48 0.98 0.53 0.78 . Jun 0.13 0.99 0.61 0.79 . Jul -0.10 0.75 0.44 0.37 . Aug -0.35 1.05 0.57 1.03 . Sep 0.47 1.57 1.01 1.08 . Oct 0.60 1.63 0.97 1.09 . Nov 0.84 1.44 0.86 0.97 . Dec 0.33 1.22 0.75 0.87 1999 Jan -0.13 0.88 0.58 0.53 . Feb -0.15 1.03 0.57 0.82 . Mar 0.65 0.55 0.35 0.16 . Apr 0.53 0.92 0.60 0.59 . May -0.49 0.72 0.51 0.53 . Jun -0.14 0.58 0.40 0.50 . Jul -0.06 0.57 0.48 0.38 . Aug -0.08 0.55 0.38 0.28 . Sep -0.24 0.43 0.42 0.42 . Oct 0.47 0.53 0.35 0.77 . Nov 0.75 0.63 0.41 1.20 . Dec 1.30 0.87 0.60 1.40 2000 Jan -0.26 0.77 0.50 0.68 . Feb -1.41 -0.07 0.18 0.35 Federal Reserve Bank of St. Louis Special Insert - Page 3 CPI1 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Price Indexes GDP2 PCE2 Potential Output Gross Domestic Product CBO (1995)3 CBO (2000)4 (Previous)5 (Revised)6 1 128.1 85.5 84.5 6074.3 6626.8 6152.6 6689.2 2 129.4 86.5 85.4 6110.1 6674.3 6171.6 6705.4 3 131.6 87.3 86.5 6145.0 6720.9 6142.1 6695.4 4 133.9 88.0 87.7 6179.1 6767.0 6079.0 6643.9 1 134.9 89.0 88.2 6212.3 6812.3 6047.5 6616.2 2 135.7 89.5 88.7 6244.7 6857.0 6074.7 6658.4 3 136.7 90.1 89.2 6276.4 6901.1 6090.1 6680.2 4 137.8 90.5 89.9 6307.2 6944.6 6105.3 6721.7 1 138.8 91.0 90.6 6337.6 6987.8 6175.7 6792.9 2 139.8 91.5 91.1 6367.7 7030.9 6214.2 6859.3 3 140.9 91.8 91.7 6397.9 7074.1 6260.7 6912.1 4 142.1 92.4 92.4 6428.4 7117.6 6327.1 7000.0 1 143.1 93.4 93.1 6459.5 7161.8 6327.9 6986.9 2 144.2 93.9 93.8 6491.3 7206.9 6359.9 7024.0 3 144.9 94.4 94.2 6523.7 7252.7 6393.5 7050.8 4 146.0 95.0 94.8 6556.9 7299.3 6476.9 7155.0 1 146.8 95.4 95.0 6590.9 7346.8 6524.5 7218.5 2 147.6 95.9 95.5 6625.8 7395.1 6600.3 7319.8 3 149.0 96.4 96.3 6661.6 7444.4 6629.5 7360.5 4 149.9 96.9 96.7 6698.2 7494.5 6688.6 7452.3 1 151.0 97.6 97.3 6737.9 7546.5 6717.5 7480.4 2 152.2 98.0 97.8 6779.4 7599.5 6724.2 7496.0 3 153.0 98.4 98.3 6822.3 7654.3 6779.5 7555.0 4 153.9 98.9 98.7 6866.0 7710.4 6825.8 7616.8 1 155.1 99.5 99.2 6910.4 7767.6 6882.0 7671.4 2 156.5 99.8 99.8 6955.6 7825.8 6983.9 7800.5 3 157.4 100.2 100.2 7002.4 7884.6 7020.0 7843.3 4 158.7 100.6 100.8 7050.1 7944.3 7093.1 7937.5 1 159.7 101.1 101.3 7098.9 8004.9 7166.7 8033.4 2 160.2 101.5 101.5 7148.9 8066.4 7236.5 8134.8 3 160.9 101.8 101.8 7200.4 8129.0 7311.2 8214.8 4 161.7 102.2 102.1 7253.1 8192.6 7364.6 8277.3 1 162.1 102.4 102.2 7306.9 8257.3 7464.7 8412.7 2 162.8 102.7 102.5 7361.9 8323.0 7498.6 8457.2 3 163.5 103.1 102.8 7417.8 8389.7 7566.5 8536.0 4 164.2 103.3 103.1 7474.6 8457.6 7677.7 8659.2 1 164.8 103.8 103.4 7532.2 8526.7 7759.6 8737.9 2 166.2 104.1 104.0 7590.7 8594.1 8778.6 3 167.3 104.4 104.5 7649.9 8663.5 7790.6 . 4 168.5 104.9 105.1 7709.9 8734.7 . 9026.9 8900.6 1. Source: BLS; SA, 1982-1984=100 4. Source: CBO; SA, billions of chained 1996 dollars 2. Source BEA; SA, 1996=100 3. Source: CBO; SA, billions of chained 1992 dollars 5. Source: BEA; SAAR, billions of chained 1992 dollars 6. Source: BEA; SAAR, billions of chained 1996 dollars Special Insert - Page 4 This page left intentionally blank Definitions Notes M1: the sum of: currency held outside the vaults of depository institutions, Federal Reserve Banks, and the U.S. Treasury; travelers checks; and demand and other checkable deposits issued by financial institutions, except demand deposits due to the Treasury and depository institutions, minus cash items in process of collection and Federal Reserve float. Page 3: MZM, or “Money, Zero Maturity” includes the zero maturity, or immediately available, components of M3. MZM equals M2 minus small denomination time deposits, plus institutional money market mutual funds (that is, the money market mutual funds included in M3 but excluded from M2). Readers are cautioned that since early 1994 the level and growth of M1 have been depressed by retail sweep programs that reclassify transactions deposits (demand deposits and other checkable deposits) as savings deposits overnight, thereby reducing banks’ required reserves; see http://www.stls.frb.org/research/swdata.html. For analytical purposes, MZM largely replaces M1. The Discount Rate and Expected Federal Funds Rate shown in the chart Reserve Market Rates, are plotted as of the date of the change, while the Effective Federal Funds Rate is plotted as of the end of the month. Interest rates in the table are monthly averages from the Board of Governors H.15 Statistical Release. Treasury Yield Curve shows constant maturity yields calculated by the U.S. Treasury Department for securities with 3 months and 1, 2, 3, 5, 7,10, 20 and 30 years to maturity. Daily data and a description are available at http://www.stls.frb.org/fred/data/wkly.html. See also Federal Reserve Bulletin, table 1.35. MZM: M2 minus small denomination time deposits, plus institutional money market mutual funds. The label MZM was coined by William Poole (1991) for this aggregate, proposed earlier by Motley (1988). Due to distortions caused by regulatory changes, the largest of which the introduction of money market accounts, data for MZM begin March 1983 in this publication. M2: M1 plus: savings deposits (including money market deposit accounts) and small denomination (less than $100,000) time deposits issued by financial institutions; and shares in retail money market mutual funds (funds with initial investments of less than $50,000), net of retirement accounts. M3: M2 plus: large denomination ($100,000 or more) time deposits; repurchase agreements issued by depository institutions; Eurodollar deposits, specifically, dollar-denominated deposits due to nonbank U.S. addresses held at foreign offices of U.S. banks worldwide and all banking offices in Canada and the United Kingdom; and institutional money market mutual funds (funds with initial investments of $50,000 or more). Bank Credit: all loans, leases and securities held by commercial banks. Domestic Nonfinancial Debt: total credit market liabilities of the U.S. Treasury, federally sponsored agencies, state and local governments, households, and firms except depository institutions and money market mutual funds. Adjusted Monetary Base: the sum of currency in circulation outside Federal Reserve Banks and the U.S. Treasury, deposits of depository financial institutions at Federal Reserve Banks, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. This series is a spliced chain index; see Anderson and Rasche (1996a,b). Adjusted Reserves: the sum of vault cash and Federal Reserve Bank deposits held by depository institutions, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. This series, a spliced chain index, is numerically larger than the Board of Governors’ measure which excludes vault cash not used to satisfy statutory reserve requirements and Federal Reserve Bank deposits used to satisfy required clearing balance contracts; see Anderson and Rasche (1996a) and http://www.stls.frb.org/research/newbase.html. Monetary Services Index: an index which measures the flow of monetary services received by households and firms from their holdings of liquid assets; see Anderson, Jones and Nesmith (1997). Indexes are shown for the assets included in M2; additional data are available at http://www.stls.frb.org/research/msi/index.html. Note: M1, M2, M3, Bank Credit and Domestic Nonfinancial Debt are constructed and published by the Board of Governors of the Federal Reserve System. For details, see Federal Reserve Bulletin, tables 1.21 and 1.26. MZM, Adjusted Monetary Base, Adjusted Reserves and Monetary Services Index are constructed and published by the Research Division of the Federal Reserve Bank of St. Louis. Page 5: Total Checkable Deposits is the sum of demand and other checkable deposits. Total Savings Deposits is the sum of money market deposit accounts (MMDA), and passbook and statement savings. Time Deposits have a minimum initial maturity of 7 days. Large Time Deposits are deposits of $100,000 or more. Retail and Institutional Money Market Mutual Funds are as included in M2 and the non-M2 component of M3, respectively. Page 7: Excess Reserves plus RCB (Required Clearing Balance) Contracts equals the amount of deposits at Federal Reserve Banks held by depository institutions but not applied to satisfy statutory reserve requirements. (This measure excludes the vault cash held by depository institutions that is not applied to satisfy statutory reserve requirements.) Consumer credit includes most short- and intermediate-term credit extended to individuals. See Federal Reserve Bulletin, table 1.55. Page 8: Inflation expectations measures include the quarterly Federal Reserve Bank of Philadelphia Survey of Professional Forecasters, the monthly University of Michigan Survey Research Center’s Surveys of Consumers, and the annual Federal Open Market Committee range as reported to the Congress in the February Humphrey-Hawkins Act testimony each year. Beginning February 2000, the FOMC began using the Personal Consumption Expenditures (PCE) price index to report its inflation range, and therefore is not shown on this graph. CPI Inflation is the percentage change from a year ago in the CPI for all urban consumers. Real Interest Rates are ex post measures, equal to nominal rates minus CPI inflation. Page 9: FOMC Expected Federal Funds Rate is the level (or midpoint of the range, if applicable) of the federal funds rate that the staff of the Federal Open Market Committee expected to be consistent with the desired degree of pressure on bank reserve positions. Page 10: Federal Funds Rate and Inflation Targets shows the observed federal funds rate, quarterly, and the level of the funds rate implied by applying Taylor’s (1993) equation ft* = 2.5 + πt-1 + (πt-1 - π*)/2 + 100 × (yt-1 - yt-1P)/2 to five alternative target inflation rates π* = 0, 1, 2, 3, 4 percent, where ft* is the implied federal funds rate, πt-1 is the previous period’s inflation rate (PCE), yt-1 is the log of the previous period’s level of real GDP, and yt-1P is the log of an estimate of the previous period’s level of potential output. Potential real output is as estimated by the Congressional Budget Office. Monetary Base Growth and Inflation Targets shows the quarterly growth of the adjusted monetary base (modified to include an estimate of the effect of sweep programs) implied by applying McCallum’s (1988, 1993) equation ∆MBt* = π* + (10-year moving average growth of real GDP) – (4-year moving average of base velocity growth) to five alternative target inflation rates π* = 0, 1, 2, 3, 4 percent, where ∆MBt* is the implied growth rate of the adjusted monetary base. The 10-year moving average growth of real GDP for a quarter “t” is calculated as the average quarterly growth during the previous 40 quarters, at an annual rate, by the formula ((yt - yt-40)/40) × 4 × 100, where yt is the log of real GDP. The four-year moving average of base velocity growth is calculated similarly. To adjust the monetary base for the effect of retail-deposit sweep programs, we add to the monetary base an amount equal to 10 percent of the total amount swept, as estimated by the Federal Reserve Board staff. These estimates are imprecise, at best. Sweep program data are available at http://www.stls.frb.org/research/swdata.html. Page 11: Implied One–Year Forward Rates are calculated by this Bank from Treasury constant maturity yields. Yields to maturity, R(m), for securities with m = 1,..., 30 years to maturity are obtained by linear interpolation between reported yields. These yields are smoothed by fitting the regression suggested by Nelson and Siegel (1987) -m/50 R(m) = a0 + (a1 + a2)(1 – e )/(m/50) – a2 × e -m/50 , and forward rates are calculated from these smoothed yields using equation (a) in Table 13.1 of Shiller (1990) f(m) = [D(m)R(m) – D(m-1)] / [D(m) – D(m-1)] –R(m) × m ) / R(m). These where duration is approximated as D(m) = (1 – e rates are linear approximations to the true instantaneous forward rates; see Shiller. For a discussion of the use of forward rates as indicators of inflation expectations, see Sharpe (1997). Rates on 3-Month Eurodollar Futures and Rates on Selected Fed Funds Futures Contracts each trace through time the yield on three specific contracts. Implied Yields on Fed Funds Futures displays a single day’s snapshot of yields for contracts expiring in the months shown on the horizontal axis. Inflation-Protected Treasury Yield Spreads equal, for 5, 10, and 30 year maturities, the difference between the Treasury constant maturity yield and the yield on the most recently issued inflation-protected security. Inflation-Indexed Bonds for Canada are the 31-year bond with a maturity date of 12/01/2026; for the U.K., the 37.5-year bond with a maturity date of 07/17/2024 and the 12.1-year bond with a maturity date of 10/21/2004; and, for the U.S., the 30-year bond with a maturity date of 04/15/2028 and the 10-year bond with a maturity date of 01/15/2007. Page 12: Velocity (for MZM and M2) equals the ratio of GDP, measured in current dollars, to the level of the monetary aggregate. MZM and M2 Own Rates are weighted averages of the rates received by households and firms on the assets included in the aggregates. Two alternative opportunity costs are shown, one relative to the 3-month Treasury constant-maturity yield, the other to the 5-year constantmaturity yield. Page 13: Real Gross Domestic Product is GDP as measured in chained 1992 dollars. The Gross Domestic Product Price Index is the implicit price deflator for GDP, which is defined by the Bureau of Economic Analysis, U.S. Department of Commerce, as the ratio of GDP measured in current dollars to GDP measured in chained 1992 dollars. Page 14: Investment Securities are all securities held by commercial banks in both investment and trading accounts. Sources Bank of Canada Canadian inflation-linked bond yields. Bank of England U.K. inflation-linked bond yields. Board of Governors of the Federal Reserve System Monetary aggregates and components, nonfinancial debt: H.6 release; bank credit and components: H.8 release; consumer credit: G.19 release; required reserves, excess reserves, clearing balance contracts and discount window borrowing: H.4.1 and H.3 releases; interest rates: H.15 and G.13 releases; nonfinancial commercial paper: Board of Governors web site; M2 and MZM own rates. Bureau of Economic Analysis Gross domestic product. Bureau of Labor Statistics Consumer price index. Federal Reserve Bank of Philadelphia Survey of Professional Forecasters inflation expectations. Federal Reserve Bank of St. Louis Adjusted monetary base and adjusted total reserves, monetary services index, one-year forward rates. Organization for Economic Cooperation and Development International interest and inflation rates. University of Michigan Survey Research Center Median expected price change. Congressional Budget Office Potential real GDP. Dow Jones and Co. (Wall Street Journal) Federal funds futures contracts, Eurodollar futures. Standard and Poors Inc. Stock price-earnings ratio, stock price composite index. U.S. Department of the Treasury U.S. inflation-protected security yields. References Anderson, Richard G. and Robert H. Rasche (1996a). “A Revised Measure of the St. Louis Adjusted Monetary Base,” Federal Reserve Bank of St. Louis Review, March/April 1996, pp. 3 - 13. and (1996b). “Measuring the Adjusted Monetary Base in an Era of Financial Change,” Federal Reserve Bank of St. Louis Review, November/December 1996, pp. 3 - 37. , Barry E. Jones and Travis D. Nesmith (1997). “Special Report: The Monetary Services Indexes Project of the Federal Reserve Bank of St. Louis,” Federal Reserve Bank of St. Louis Review, January/ February 1997, pp. 31 - 82. McCallum, Bennett T. (1988). “Robustness Properties of a Monetary Policy Rule,” Carnegie-Rochester Conference Series on Public Policy, vol. 29, pp. 173 - 204. (1993). “Specification and Analysis of a Monetary Policy Rule for Japan,” Bank of Japan Monetary and Economic Studies, November, pp. 1 - 45. Motley, Brian (1988). “Should M2 Be Redefined?” Federal Reserve Bank of San Francisco Economic Review, Winter, pp. 33 - 51. Nelson, Charles R. and Andrew F. Siegel (1987). “Parsimonious Modeling of Yield Curves,” Journal of Business, October, pp. 473 - 89. Poole, William (1991). Statement before the Subcommittee on Domestic Monetary Policy of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, November 6, 1991. Government Printing Office, Serial No. 102-82. Sharpe, William F. (1997). Macro-Investment Analysis, on-line textbook available at www-sharpe.stanford.edu/mia.htm. Shiller, Robert (1990). “The Term Structure of Interest Rates,” Handbook of Monetary Economics, vol. 1, B. Friedman and F. Hahn, eds., pp. 627 - 722. Taylor, John B. (1993). “Discretion versus Policy Rules in Practice,” Carnegie-Rochester Conference Series on Public Policy, vol. 39, pp. 195 - 214. Note: Articles from this Bank’s Review are available on the Internet at www.stls.frb.org/research/reviewdat.html.