Full text of Monetary Trends : August 2006
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MonetaryTrends August 2006 Is All That Talk Just Noise? A nnouncements by the Federal Reserve regarding its target value for the federal funds rate garner substantial attention from the media and participants in financial markets. Indeed, there is evidence that the “news” in these announcements, or the deviation of the targeted funds rate from market expectations, affects the price of assets traded in various financial markets, most notably those for equities and bonds. In recent years, however, communication from the Federal Reserve has increasingly included not just policy decisions on where to set the federal funds rate, but also many forms of non-quantitative communication: that is, the written statement released following meetings of the Federal Open Market Committee; testimony by Federal Reserve officials, particularly the Chairman, before Congress; and speeches made by Federal Reserve governors and regional Reserve Bank presidents. I discuss here some evidence regarding whether this large amount of written and verbal communication is also deemed important by market participants for valuing financial assets. This would be the case if buyers and sellers believed that Federal Reserve talk was informative about the direction of future policy, conveying information that should influence market expectations. In addition, market participants may value Federal Reserve talk if they believe it conveys some new information about the state of the economy. A difficulty in evaluating the market effects of Federal Reserve talk is obtaining a quantitative measure of the content of qualitative communication. One approach is to construct such a measure through a subjective reading of the text. However, this approach may be contaminated by the biases of the researcher and is cumbersome when there is a large amount of text to analyze. In a recent study, Michelle Bligh and Gregory Hess of The Claremont Colleges take a different approach based on “content analysis.” Content analysis assesses the prevalence of words in a text that match those in predetermined word lists created by linguists. For example, lists that contain words that express “optimism” or “pessimism” can be used to characterize the optimistic or pessimistic tone of any piece of text. Using this approach, Bligh and Hess study the effects of a variety of written and verbal communications by Alan Greenspan, the former Federal Reserve Chairman, over the period 1999-2004. They find that the language used by Chairman Greenspan had significant predictive power for a number of financial variables. In particular, this language was a significant predictor of equity prices as well as shortand long-term interest rates in the days immediately following the communication, with the most sustained effects occurring in Treasury bond yields. Interestingly, all the forms of non-quantitative communication they analyzed, including statements, testimony, and speeches, had some amount of predictive power. The fact that Federal Reserve talk influences the behavior of financial markets has at least two important and related implications. The first is that written and verbal communication by Chairman Greenspan was taken seriously by the markets over this period. This is no small achievement given that such communication is by its very nature unverifiable and open to interpretation. Second, it suggests that written and verbal communication is an effective tool that the Federal Reserve has at its disposal to convey information to financial markets. The extent of non-quantitative communication and the language used in these communications are likely to be important choices made by Federal Reserve policymakers in the future. Indeed, there is already a widely held perception that the language used in the policy statement released following FOMC meetings under Chairman Ben Bernanke has differed from that used under Chairman Greenspan. —Jeremy M. Piger Bligh, Michelle and Hess, Gregory D. “A Quantitative Assessment of the Qualitative Aspects of Chairman Greenspan’s Communications.” Unpublished manuscript, Claremont McKenna College, 2005. Views expressed do not necessarily reflect official positions of the Federal Reserve System. research.stlouisfed.org Contents Page 3 4 6 7 8 9 10 11 12 14 15 16 18 Monetary and Financial Indicators at a Glance Monetary Aggregates and Their Components Monetary Aggregates: Monthly Growth Reserves Markets and Short-Term Credit Flows Measures of Expected Inflation Interest Rates Policy-Based Inflation Indicators Implied Forward Rates, Futures Contracts, and Inflation-Indexed Securities Velocity, Gross Domestic Product, and M2 Bank Credit Stock Market Index and Foreign Inflation and Interest Rates Reference Tables Definitions, Notes, and Sources Conventions used in this publication: 1. Unless otherwise indicated, data are monthly. 2. Shaded areas indicate recessions, as determined by the National Bureau of Economic Research. 3. 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: [(xt /x t – 1 )–1] × 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: [(xt /x t – 12 )–1] × 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 63166-0442 On March 23, 2006, the Board of Governors of the Federal Reserve System ceased the publication of the M3 monetary aggregate. It also ceased publishing the following components: large-denomination time deposits, RPs, and eurodollars. or to: stlsFRED@stls.frb.org Monetary Trends is published monthly by the Research Division of the Federal Reserve Bank of St. Louis. Visit the Research Division’s website at research.stlouisfed.org/publications/mt to download the current version of this publication or register for e-mail notification updates. For more information on data in the publication, please visit research.stlouisfed.org/fred2 or call (314) 444-8590. updated through 07/18/06 Monetary Trends M2 and MZM Treasury Yield Curve Billions of dollars Percent 7150 6.5 6.0 6900 MZM Week Ending Friday: 07/15/05 06/16/06 07/14/06 5.5 6650 5.0 6400 4.5 M2 6150 4.0 5900 3.5 5650 3.0 2003 2003 2004 2004 2005 2005 2006 2006 5y Adjusted Monetary Base Percent 30 3.5 20 3.0 10 2.5 0 2.0 -10 1.5 -20 2003 2004 2005 2005 2006 2006 5y 7y 10y 20y 2007 Reserve Market Rates Inflation-Indexed Treasury Yield Spreads Percent Percent 6.5 3.5 Effective Federal Funds Rate Intended Federal Funds Rate 6.0 20y Week Ending Friday: 07/15/05 06/16/06 07/14/06 1.0 2004 10y Real Treasury Yield Curve Percent change at an annual rate 2003 7y 2007 5.5 5.0 Week Ending Friday: 07/15/05 06/16/06 07/14/06 3.0 4.5 4.0 Primary Credit Rate 3.5 2.5 3.0 2.5 2.0 2.0 1.5 1.0 0.5 1.5 2003 2003 2004 2004 2005 2005 2006 2006 5y 7y 10y 20y 2007 Research Division Federal Reserve Bank of St. Louis 3 updated through 07/17/06 Monetary Trends MZM and M1 Percent change from year ago 25 20 15 10 MZM 5 0 M1 -5 -10 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 M2 Percent change from year ago 15 10 5 0 -5 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 M3* Percent change from year ago 15 10 5 0 -5 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 *See table of contents for changes to the series. 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Monetary Services Index - M2** Percent change from year ago 15 10 5 0 -5 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 **We will not update the MSI series until we revise the code to accomodate the discontinuation of M3. 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Research Division 4 Federal Reserve Bank of St. Louis updated through 07/17/06 Monetary Trends Adjusted Monetary Base Percent change from year ago 20 15 10 5 0 -5 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 03 2003 2004 04 2005 05 2006 Domestic Nonfinancial Debt Currency Held by the Nonbank Public Percent change from year ago Percent change from year ago 15 15 06 2007 10 10 5 Total 0 5 -5 Federal -10 0 1999 2000 2001 2002 2003 2004 2005 2006 1999 2000 2001 2002 2003 2004 2005 2006 2007 2003 2003 2004 2004 2005 2005 2006 Time Deposits* Checkable and Savings Deposits Percent change from year ago Percent change from year ago 30 30 25 20 20 15 15 10 10 5 5 0 0 -5 -5 2003 2003 2004 2004 2005 Savings Checkable -10 Small Denomination -15 2007 25 Large Denomination -10 2006 -15 2005 2006 2006 *See table of contents for changes to the series. 2007 Money Market Mutual Fund Shares 2003 2003 2004 2004 2005 2005 2006 2006 2007 Repurchase Agreements and Eurodollars* Percent change from year ago Billions of dollars Billions of dollars 600 20 500 Repos (left) 550 450 10 Institutional Funds 0 500 400 450 350 400 300 Eurodollars (right) -10 350 Retail Funds -20 2003 2003 2004 250 300 2004 2005 2005 2006 2006 2007 200 2003 2004 2005 2006 *See table of contents for changes to these series. Research Division Federal Reserve Bank of St. Louis 5 updated through 07/17/06 Monetary Trends M1 Percent change at an annual rate 30 20 10 0 -10 -20 -30 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 *Actual values for September and October 2001 are 55.87 and -38.35 percent rate, respectively. 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 MZM Percent change at an annual rate 30 20 10 0 -10 -20 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 *Actual value for September 2001 is 39.41 percent rate. 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 M2 Percent change at an annual rate 20 10 0 -10 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 *Actual value for September 2001 is 24.90 percent rate. 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 M3* Percent change at an annual rate 30 20 10 0 -10 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 *See table of contents for changes to the series. 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Research Division 6 Federal Reserve Bank of St. Louis updated through 07/17/06 Monetary Trends Adjusted and Required Reserves Billions of dollars 120 100 Adjusted 80 60 Required 40 20 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 Total Borrowings, nsa Excess Reserves plus RCB Contracts Billions of dollars Billions of dollars 0.8 16 06 2007 0.6 12 0.4 8 0.2 0.0 4 1999 2000 2001 2002 2003 2004 2005 2006 1999 2000 2001 2002 2003 2004 2005 2006 2007 1999 2000 2001 2002 2003 2004 2005 2006 1999 2000 2001 2002 2003 2004 2005 2006 2007 *Actual value for September 2001 is $3.4 billion. *Actual value for September 2001 is $26.43 billion. Nonfinancial Commercial Paper Percent change from year ago 60 40 20 0 -20 -40 -60 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 As of April 10, 2006, the Federal Reserve Board made major changes to its commercial paper calculations. For more information, please refer to http://www.federalreserve.gov/releases/cp/about.htm. 2003 03 2004 04 2005 05 2006 06 2007 Consumer Credit Percent change from year ago 20 15 10 5 0 -5 -10 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Research Division Federal Reserve Bank of St. Louis 7 updated through 07/06/06 Monetary Trends Inflation and Inflation Expectations Percent 10 8 6 Humphrey-Hawkins CPI Inflation Range 4 2 Federal Reserve Bank of Philadelphia CPI Inflation University of Michigan 0 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 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 notes on page 19. Treasury Security Yield Spreads Yield to maturity 6 4 10-Year less 3-Month T-Bill 2 0 3-Year less 3-Month T-Bill 10-Year less 3-Year Note -2 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Real Interest Rates Percent, Real rate = Nominal rate less CPI inflation 8 6 1-Year Treasury Yield 4 2 Federal Funds Rate 0 -2 -4 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Research Division 8 Federal Reserve Bank of St. Louis updated through 07/06/06 Monetary Trends Short-Term Interest Rates Percent 14 90-Day Commercial Paper 12 10 8 Prime Rate 6 4 3-Month Treasury Yield 2 0 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Long-Term Interest Rates Percent 13 11 Conventional Mortgage 9 7 5 Corporate Aaa 10-Year Treasury Yield 3 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 Long-Term Interest Rates Short-Term Interest Rates Percent Percent 8 2004 04 2005 05 2006 06 2007 6 Corporate Baa 7 5 90-Day Commercial Paper 4 6 3 5 3-Month Treasury Yield 2 4 1 10-Year Treasury Yield 3 2003 2003 2004 2004 0 2005 2005 2006 2006 2007 2003 2003 2004 2004 2005 2005 2006 2006 2007 *90-Day Commercial Paper data are not available for December 2005 and January 2006. FOMC Intended Federal Funds Rate, Discount Rate, and Primary Credit Rate Percent 12 10 8 Intended Federal Funds Rate 6 4 Primary Credit Rate Discount Rate 2 0 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Research Division Federal Reserve Bank of St. Louis 9 updated through 07/17/06 Monetary Trends Federal Funds Rate and Inflation Targets Percent 12 4% 3% 2% 1% 0% Target Inflation Rates 9 6 3 Actual 0 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 Calculated federal funds rate is based on Taylor's rule. See notes on page 19. Components of Taylor's Rule Actual and Potential Real GDP PCE Inflation Billions of chain-weighted 2000 dollars Percent change from year ago 12000 6 11500 5 Potential 11000 4 10500 Actual 10000 3 2 9500 1 9000 8500 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Monetary Base Growth* and Inflation Targets Percent 12 Actual 9 6 3 Target Inflation Rates 0 1997 97 98 1998 1999 99 00 2000 01 2001 02 2002 03 0% 1% 2% 3% 4% 2003 04 2004 2005 05 06 2006 07 *Modified for the effects of sweeps programs on reserve demand. Calculated base growth is based on McCallum's rule. Actual base growth is percent change from year ago. See notes on page 19. Components of McCallum's Rule Monetary Base Velocity Growth Real Output Growth Percent Percent 8 8 1-Year Moving Average 1-Year Moving Average 4 4 10-Year Moving Average 0 0 4-Year Moving Average -4 -8 -4 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 Research Division 10 Federal Reserve Bank of St. Louis updated through 07/18/06 Monetary Trends Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent 8 Percent, daily data 5.7 Week Ending: 07/15/05 06/16/06 07/14/06 6 Sep 2006 5.6 Aug 2006 5.5 || | || 4 5.4 2 Jul 2006 5.3 0 2y 5y 3y 7y 10y 5.2 05/15 05/22 05/29 06/05 06/12 06/19 06/26 07/03 07/10 07/17 Rates on Selected Federal Funds Futures Contracts Rates on Federal Funds Futures on Selected Dates Percent, daily data Percent 5.5 5.5 06/16/2006 Sep 2006 5.4 5.4 07/14/2006 Aug 2006 5.3 5.3 5.2 Jul 2006 5.2 5.1 05/12/2006 5.0 5.1 05/15 05/22 05/29 06/05 06/12 06/19 06/26 07/03 07/10 07/17 Jul Aug Sep Oct Nov Dec Contract Month Inflation-Indexed Treasury Securities Inflation-Indexed Treasury Yield Spreads Weekly data Weekly data Percent Percent 3 3.5 2 2.5 1 1.5 20 0 2004 15 10 2005 2006 20 15 0.5 2004 Maturity 5 2007 . Note: Yields are inflation-indexed constant maturity U.S. Treasury securities 10 2005 2006 Horizon 5 2007 . Note: Yield spread is between nominal and inflation-indexed constant maturity U.S. Treasury securities. Inflation-Indexed 10-Year Government Notes Inflation-Indexed 10-Year Government Yield Spreads Percent, weekly data Percent, weekly data 4 4 U.K. France 3 3 2 U.S. 2 U.K. France U.S. 1 1 0 0 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 Research Division Federal Reserve Bank of St. Louis 11 updated through 07/17/06 Monetary Trends Velocity Nominal GDP/MZM, Nominal GDP/M2 (Ratio Scale) 3.00 2.75 MZM 2.50 2.25 M2 2.00 1.75 1.50 10593 89 10958 90 11323 91 11688 92 12054 93 12419 94 12784 95 13149 96 13515 97 13880 98 14245 99 14610 00 14976 01 15341 02 15706 03 16071 04 16437 05 16802 06 17167 Interest Rates Percent 10 8 3-Month T-Bill 6 4 M2 Own MZM Own 2 0 10593 89 10958 90 11323 91 11688 92 12054 93 12419 94 12784 95 13149 96 13515 97 13880 14245 99 14610 00 14976 01 15341 02 15706 03 16071 04 16437 05 16802 MZM Velocity and Interest Rate Spread M2 Velocity and Interest Rate Spread Ratio Scale Ratio Scale 3.50 06 17167 2.25 Velocity = Nominal GDP / M2 Velocity = Nominal GDP / MZM 98 3.00 2.50 2.00 2.00 1.75 1.50 1974Q1 to 1993Q4 1994Q1 to present 1974Q1 to 1993Q4 1994Q1 to present 1.25 1.50 0 1 2 3 4 5 6 7 8 9 10 Interest Rate Spread = 3-Month T-Bill less MZM Own Rate 11 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 Interest Rate Spread = 3-Month T-Bill less M2 Own Rate Research Division 12 Federal Reserve Bank of St. Louis updated through 07/17/06 Monetary Trends Gross Domestic Product Percent change from year ago 20 15 10 5 0 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Dashed lines indicate 10-year moving averages. Real Gross Domestic Product Percent change from year ago 15 10 5 0 -5 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Dashed lines indicate 10-year moving averages. Gross Domestic Product Price Index Percent change from year ago 20 15 10 5 0 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Dashed lines indicate 10-year moving averages. M2 Percent change from year ago 20 15 10 5 0 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 04 2005 05 2006 06 2007 Dashed lines indicate 10-year moving averages. Research Division Federal Reserve Bank of St. Louis 13 updated through 07/17/06 Monetary Trends Bank Credit Percent change from year ago 20 15 10 5 0 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 Investment Securities in Bank Credit at Commercial Banks Percent change from year ago 25 20 15 10 5 0 -5 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 Total Loans and Leases in Bank Credit at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 Commercial and Industrial Loans at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 -10 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 Research Division 14 Federal Reserve Bank of St. Louis updated through 07/06/06 Monetary Trends Standard & Poor's 500 1600 48 1400 42 Composite Index (left) 1200 36 1000 30 800 24 Price/Earnings Ratio (right) 600 18 400 12 200 6 0 0 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 Recent Inflation and Long-Term Interest Rates Consumer Price Inflation Rates Long-Term Government Bond Rates Percent change from year ago 2005Q2 2005Q3 2005Q4 2006Q1 Percent Apr06 May06 Mar06 Jun06 United States 2.95 3.80 3.73 3.68 4.72 4.99 5.11 Canada 1.90 2.64 2.26 2.41 4.19 4.42 4.42 . France 1.69 1.90 1.65 1.79 3.69 3.96 . . Germany 1.70 2.13 2.25 1.96 3.64 3.89 3.96 . Italy Japan United Kingdom 5.11 1.84 2.03 2.15 2.14 3.92 4.22 4.28 . -0.10 -0.27 -0.58 0.41 1.70 1.91 1.91 1.87 3.01 2.78 2.38 2.39 4.30 4.40 4.60 . Inflation and Long-Term Interest Rate Differentials Percent Percent 3 3 Canada U.K. Canada 0 0 U.K. Germany Japan Germany -3 -3 Japan Inflation differential = Foreign inflation less U.S. inflation Long-term rate differential = Foreign rate less U.S. rate -6 01/01/2003 -6 2003 01/01/2004 2004 01/01/2005 2005 01/01/2006 2006 01/01/2007 01/01/2003 2003 01/01/2004 2004 01/01/2005 2005 01/01/2006 2006 01/01/2007 Research Division Federal Reserve Bank of St. Louis 15 updated through 07/17/06 Monetary Trends Money Stock Bank Adjusted M1 MZM M2 M3* Credit Monetary Base 2001. 2002. 1140.196 5223.809 5221.416 7648.507 5345.104 641.167 86.172 271.477 1196.168 5895.588 5614.102 8259.055 5598.053 697.092 88.158 294.080 2003. 2004. 1273.742 6333.008 6005.194 8787.321 6121.396 740.929 93.313 315.192 1344.776 6582.026 6277.757 9234.718 6598.544 776.707 96.066 329.873 2005. 1368.717 6722.114 6541.731 9786.477 7240.026 806.308 96.222 343.539 Reserves MSI M2** 2004 1 1318.425 6446.396 6131.165 9003.705 6426.484 761.428 95.033 322.050 . 2 1338.979 6595.935 6261.926 9223.054 6557.100 771.146 96.603 328.960 . 3 1352.681 6626.890 6319.667 9316.285 6650.004 782.783 96.801 332.111 . 4 1369.017 6658.883 6398.270 9395.830 6760.586 791.470 95.825 336.371 2005 1 1369.833 6669.722 6455.484 9528.052 6989.032 798.244 96.654 339.356 . 2 1368.721 6674.005 6495.504 9670.405 7160.044 802.634 96.059 341.280 . 3 1366.836 6732.074 6566.270 9859.294 7350.926 808.400 96.286 344.766 . 4 1369.479 6812.654 6649.668 10088.16 7460.100 815.953 95.888 348.753 2006 1 1381.720 6906.722 6759.250 . 7638.915 830.481 96.479 . . 2 1384.623 6940.809 6807.116 . 7884.873 836.387 95.221 . 2004 Jun 1341.192 6622.667 6288.595 9275.732 6588.643 775.276 96.930 330.439 Jul Aug 1343.431 6614.151 6295.192 9282.651 6605.758 780.465 95.693 330.885 . 1354.126 6626.092 6317.062 9314.355 6637.261 781.531 96.030 331.953 . Sep 1360.486 6640.428 6346.747 9351.849 6706.993 786.352 98.679 333.496 . Oct 1360.799 6638.774 6369.117 9359.369 6721.198 792.252 97.565 334.816 . Nov 1374.114 6664.062 6403.825 9395.128 6762.234 793.883 96.837 336.675 . Dec 1372.137 6673.812 6421.869 9432.994 6798.327 788.274 93.074 337.622 . 2005 Jan 1367.032 6669.990 6436.137 9487.218 6892.870 793.547 95.104 338.366 . Feb 1369.472 6668.749 6455.410 9531.592 6993.442 800.277 97.813 339.355 . Mar 1372.994 6670.428 6474.904 9565.346 7080.785 800.907 97.045 340.347 . Apr 1365.820 6670.782 6481.017 9620.909 7106.083 802.314 97.419 340.663 . May 1370.779 6664.078 6489.530 9665.013 7158.750 800.583 94.568 340.941 . Jun 1369.564 6687.156 6515.964 9725.292 7215.300 805.005 96.190 342.235 . 1362.523 6702.457 6536.032 9762.435 7281.095 805.967 95.513 343.275 . Jul Aug 1370.440 6730.302 6566.250 9864.629 7361.619 807.390 95.633 344.739 . Sep 1367.546 6763.464 6596.528 9950.818 7410.064 811.844 97.713 346.285 . Oct 1369.430 6794.122 6625.704 10031.96 7429.240 816.112 97.348 347.590 . Nov 1370.214 6805.288 6647.562 10078.49 7449.667 816.800 96.842 348.603 . Dec 1368.792 6838.552 6675.739 10154.03 7501.393 814.948 93.473 350.067 2006 Jan 1383.040 6901.596 6737.957 10242.79 7558.425 825.231 96.803 353.032 . Feb 1376.841 6905.583 6761.272 10298.68 7645.533 832.424 96.927 353.943 . Mar 1385.280 6912.988 6778.520 . 7712.788 833.789 95.707 . . Apr 1391.042 6932.383 6798.963 . 7803.664 835.217 95.638 . . May 1394.038 6931.373 6796.562 . 7921.138 837.098 94.562 . . Jun 1368.789 6958.672 6825.823 . 7929.816 836.847 95.463 . Note: All values are given in billions of dollars. *See table of contents for changes to the series. **We will not update the MSI series until we revise the code to accommodate the discontinuation of M3. Research Division 16 Federal Reserve Bank of St. Louis updated through 07/17/06 Monetary Trends Federal Primary Prime 3-mo Funds Credit Rate Rate CDs 3-mo Treasury Yields 3-yr 10-yr Corporate S&L Aaa Bonds Aaa Bonds Conventional Mortgage 2001. 2002. 2003. 2004. 2005. 3.89 1.67 1.13 1.35 3.21 . . 2.11 2.34 4.19 6.92 4.68 4.12 4.34 6.19 3.69 1.73 1.15 1.56 3.51 3.47 1.63 1.03 1.40 3.21 4.08 3.10 2.11 2.78 3.93 5.02 4.61 4.02 4.27 4.29 7.08 6.49 5.67 5.63 5.23 5.01 4.87 4.52 4.50 4.28 6.97 6.54 5.82 5.84 5.86 1 2 3 4 1.00 1.01 1.43 1.95 2.00 2.00 2.42 2.94 4.00 4.00 4.42 4.94 1.05 1.25 1.70 2.25 0.93 1.10 1.51 2.04 2.17 2.98 2.92 3.05 4.02 4.60 4.30 4.17 5.45 5.93 5.64 5.48 4.26 4.82 4.54 4.39 5.61 6.13 5.89 5.73 1 2 3 4 2.47 2.94 3.46 3.98 3.44 3.91 4.43 4.97 5.44 5.91 6.43 6.97 2.78 3.23 3.74 4.30 2.58 2.93 3.43 3.91 3.61 3.73 3.98 4.37 4.30 4.16 4.21 4.49 5.32 5.15 5.09 5.38 4.23 4.15 4.28 4.45 5.76 5.72 5.76 6.22 1 2 4.46 4.91 5.43 5.90 7.43 7.90 4.72 5.18 4.50 4.83 4.58 4.98 4.57 5.07 5.39 5.89 4.29 4.35 6.24 6.60 2004 Jun 1.03 2.01 4.01 1.46 1.29 3.26 4.73 6.01 4.85 6.29 . . . Jul Aug Sep 1.26 1.43 1.61 2.25 2.43 2.58 4.25 4.43 4.58 1.57 1.68 1.86 1.36 1.50 1.68 3.05 2.88 2.83 4.50 4.28 4.13 5.82 5.65 5.46 4.71 4.52 4.40 6.06 5.87 5.75 . . . Oct Nov Dec 1.76 1.93 2.16 2.75 2.93 3.15 4.75 4.93 5.15 2.04 2.26 2.45 1.79 2.11 2.22 2.85 3.09 3.21 4.10 4.19 4.23 5.47 5.52 5.47 4.38 4.45 4.35 5.72 5.73 5.75 2005 Jan . Feb Mar . 2.28 2.50 2.63 3.25 3.49 3.58 5.25 5.49 5.58 2.61 2.77 2.97 2.37 2.58 2.80 3.39 3.54 3.91 4.22 4.17 4.50 5.36 5.20 5.40 4.24 4.16 4.29 5.71 5.63 5.93 . . . Apr May Jun 2.79 3.00 3.04 3.75 3.98 4.01 5.75 5.98 6.01 3.09 3.22 3.38 2.84 2.90 3.04 3.79 3.72 3.69 4.34 4.14 4.00 5.33 5.15 4.96 4.18 4.20 4.08 5.86 5.72 5.58 . . . Jul Aug Sep 3.26 3.50 3.62 4.25 4.44 4.59 6.25 6.44 6.59 3.57 3.77 3.87 3.29 3.52 3.49 3.91 4.08 3.96 4.18 4.26 4.20 5.06 5.09 5.13 4.18 4.33 4.34 5.70 5.82 5.77 . . . Oct Nov Dec 3.78 4.00 4.16 4.75 5.00 5.15 6.75 7.00 7.15 4.13 4.31 4.45 3.79 3.97 3.97 4.29 4.43 4.39 4.46 4.54 4.47 5.35 5.42 5.37 4.49 4.42 4.46 6.07 6.33 6.27 2006 Jan . Feb Mar . 4.29 4.49 4.59 5.26 5.50 5.53 7.26 7.50 7.53 4.56 4.72 4.88 4.34 4.54 4.63 4.35 4.64 4.74 4.42 4.57 4.72 5.29 5.35 5.53 4.27 4.33 4.29 6.15 6.25 6.32 Apr May 4.79 4.94 4.99 5.75 5.93 6.02 7.75 7.93 8.02 5.03 5.15 5.35 4.72 4.84 4.92 4.89 4.97 5.09 4.99 5.11 5.11 5.84 5.95 5.89 4.36 4.38 4.31 6.51 6.60 6.68 2004 . . . 2005 . . . 2006 . . . . Jun Note: All values are given as a percent at an annual rate. Research Division Federal Reserve Bank of St. Louis 17 updated through 07/17/06 Monetary Trends M1 MZM M2 M3* Percent change at an annual rate 2001. 2002. 2003. 2004. 2005. 3.33 4.91 6.49 5.58 1.78 15.88 12.86 7.42 3.93 2.13 8.81 7.52 6.97 4.54 4.20 11.49 7.98 6.40 5.09 5.97 1 2 3 4 5.89 6.24 4.09 4.83 2.61 9.28 1.88 1.93 3.26 8.53 3.69 4.98 5.43 9.74 4.04 3.42 1 2 3 4 0.24 -0.32 -0.55 0.77 0.65 0.26 3.48 4.79 3.58 2.48 4.36 5.08 5.63 5.98 7.81 9.29 1 2 3.58 0.84 5.52 1.97 6.59 2.83 . . 2004 Jun 4.28 0.66 1.56 4.15 . . . Jul Aug Sep 2.00 9.55 5.64 -1.54 2.17 2.60 1.26 4.17 5.64 0.90 4.10 4.83 . . . Oct Nov Dec 0.28 11.74 -1.73 -0.30 4.57 1.76 4.23 6.54 3.38 0.96 4.58 4.84 2005 Jan . Feb Mar . -4.46 2.14 3.09 -0.69 -0.22 0.30 2.67 3.59 3.62 6.90 5.61 4.25 . . . Apr May Jun -6.27 4.36 -1.06 0.06 -1.21 4.16 1.13 1.58 4.89 6.97 5.50 7.48 . . . Jul Aug Sep -6.17 6.97 -2.53 2.75 4.99 5.91 3.70 5.55 5.53 4.58 12.56 10.48 . . . Oct Nov Dec 1.65 0.69 -1.25 5.44 1.97 5.87 5.31 3.96 5.09 9.79 5.57 8.99 2006 Jan . Feb Mar . 12.49 -5.38 7.36 11.06 0.69 1.29 11.18 4.15 3.06 10.49 6.55 Apr May 4.99 2.58 -21.73 3.37 -0.17 4.73 3.62 -0.42 5.17 . . . 2004 . . . 2005 . . . 2006 . . . . Jun . *See table of contents for changes to the series. Research Division 18 Federal Reserve Bank of St. Louis Monetary Trends Definitions 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. MZM (money, zero maturity): M2 minus small-denomination time deposits, plus institutional money market mutual funds (that is, those included in M3 but excluded from M2). The label MZM was coined by William Poole (1991); the aggregate itself was proposed earlier by Motley (1988). M2: M1 plus savings deposits (including money market deposit accounts) and small-denomination (under $100,000) time deposits issued by financial institutions; and shares in retail money market mutual funds (funds with initial investments under $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 nonfinancial firms. End-of-period basis. 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, 2001, 2003). 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 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, 2001, 2003). Monetary Services Index: An index that 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, with additional data at research.stlouisfed.org/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 Statistical Supplement to the 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. Notes Page 3: 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 Anderson and Rasche (2001) and research.stlouisfed.org/aggreg/swdata.html. Primary Credit Rate, Discount Rate, and Intended 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. The Treasury Yield Curve and Real Treasury Yield Curve show constant maturity yields calculated by the U.S. Treasury for securities 5, 7, 10, and 20 years to maturity. Inflation-Indexed Treasury Yield Spreads are a Research Division Federal Reserve Bank of St. Louis measure of inflation compensation at those horizons, and it is simply the nominal constant maturity yield less the real constant maturity yield. Daily data and descriptions are available at research.stlouisfed.org/fred2/. See also Statistical Supplement to the Federal Reserve Bulletin, table 1.35. The 30year constant maturity series was discontinued by the Treasury as of February 18, 2002. Page 5: Checkable Deposits is the sum of demand and other checkable deposits. Savings Deposits is the sum of money market deposit accounts 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 Statistical Supplement to the 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 (FOMC) range as reported to the Congress in the February testimony that accompanies the Monetary Policy Report to the Congress. Beginning February 2000, the FOMC began using the personal consumption expenditures (PCE) price index to report its inflation range; the FOMC then switched to the PCE chain-type price index excluding food and energy prices (“core”) beginning July 2004. Accordingly, neither are shown on this graph. CPI Inflation is the percentage change from a year ago in the consumer price index for all urban consumers. Real Interest Rates are ex post measures, equal to nominal rates minus CPI inflation. Page 9: FOMC Intended Federal Funds Rate is the level (or midpoint of the range, if applicable) of the federal funds rate that the staff of the FOMC expected to be consistent with the desired degree of pressure on bank reserve positions. In recent years, the FOMC has set an explicit target for the federal funds rate. 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 + π t –1 + (π t –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, π t –1 is the previous period’s inflation rate (PCE) measured on a year-over-year basis, yt –1 is the log of the previous period’s level of real gross domestic product (GDP), and yt –1P is the log of an estimate of the previous period’s level of potential output. Potential Real GDP 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 ΔMBt* = 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 ΔMBt* 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) × 400, where yt is the log of real GDP. The 4-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 found at research.stlouisfed.org/aggreg/swdata.html. 19 Monetary Trends 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,... , 10 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), R(m) = a0 + (a1 + a2 )(1 – e–m/50 )/(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)], where duration is approximated as D(m) = (1 – e –R(m) × m)/R(m). These rates are linear approximations to the true instantaneous forward rates; see Shiller (1990). 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 Federal Funds Futures Contracts trace through time the yield on three specific contracts. Rates on Federal Funds Futures on Selected Dates displays a single day’s snapshot of yields for contracts expiring in the months shown on the horizontal axis. Inflation-Indexed Treasury Securities and Yield Spreads are those plotted on page 3. Inflation-Indexed 10-Year Government Notes shows the yield of an inflation-indexed note that is scheduled to mature in approximately (but not greater than) 10 years. The current French note has a maturity date of 7/25/2015, the current U.K. note has a maturity date of 8/16/2013, and the current U.S. note has a maturity date of 1/15/2016. Inflation-Indexed Treasury Yield Spreads and InflationIndexed 10-Year Government Yield Spreads equal the difference between the yields on the most recently issued inflation-indexed securities and the unadjusted security yields of similar maturity. 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. Prior to 1982, the 3-month T-bill rates are secondary market yields. From 1982 forward, rates are 3-month constant maturity yields. Page 13: Real Gross Domestic Product is GDP as measured in chained 2000 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 2000 dollars. Chicago Mercantile Exchange : Eurodollar futures. Congressional Budget Office : Potential real GDP. Federal Reserve Bank of Philadelphia : Survey of Professional Forecasters inflation expectations. Federal Reserve Bank of St. Louis : Adjusted monetary base and adjusted reserves, monetary services index, MZM own rate, one-year forward rates. Organization for Economic Cooperation and Development : International interest and inflation rates. Standard & Poor’s : Stock price-earnings ratio, stock price composite index. University of Michigan Survey Research Center : Median expected price change. U.S. Department of the Treasury : U.S. 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, 78(2), 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, 78(6), pp. 3-37.* ____ and ____(2001). “Retail Sweep Programs and Bank Reserves, 19941999,” Federal Reserve Bank of St. Louis Review, January/February, 83(1), pp. 51-72.* ____ and ____ , with Jeffrey Loesel (2003). “A Reconstruction of the Federal Reserve Bank of St. Louis Adjusted Monetary Base and Reserves,” Federal Reserve Bank of St. Louis Review, September/October, 85(5), pp. 39-70.* ____ , 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, 79(1), 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. Page 14: Investment Securities are all securities held by commercial banks in both investment and trading accounts. ____(1993). “Specification and Analysis of a Monetary Policy Rule for Japan,” Bank of Japan Monetary and Economic Studies, November, pp. 1-45. Page 15: Inflation Rate Differentials are the differences between the foreign consumer price inflation rates and year-over-year changes in the U.S. all-items Consumer Price Index. Motley, Brian (1988). “Should M2 Be Redefined?” Federal Reserve Bank of San Francisco Economic Review, Winter, pp. 33-51. Page 17: Treasury Yields are Treasury constant maturities as reported in the Board of Governors of the Federal Reserve System’s H.15 release. Sources Agence France Trésor: French note yields. Bank of Canada: Canadian note yields. 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.stanford.edu/~wfsharpe/mia/mia.htm. Bank of England : U.K. note yields. Board of Governors of the Federal Reserve System : Monetary aggregates and components: 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 release. Nonfinancial commercial paper: Board of Governors website. Nonfinancial debt: Z.1 release. M2 own rate. 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,” CarnegieRochester Conference Series on Public Policy, vol. 39, pp. 195-214. Note: *Available on the Internet at research.stlouisfed.org/publications/review/. Bureau of Economic Analysis : GDP. Bureau of Labor Statistics : CPI. Chicago Board of Trade: Federal funds futures contract. 20 Research Division Federal Reserve Bank of St. Louis