Full text of Monetary Trends : December 2000
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December 2000 MonetaryTrends The Golden Dollar: The Early Evidence Earlier this year, the United States introduced its eighth dollar coin. The new dollar coin is gold in color and bears the image of Sacagawea—the only woman on the Lewis and Clark expedition. Proponents of the dollar coin point out that the widespread use of dollar coins would result in considerable savings to the government. On average, coins have a projected life of 30 years, compared with about 18 months for the dollar bill. Although dollar bills cost about 3.5 cents to produce, compared to 12 cents for the dollar coin, the relatively short life of dollar bills make them more expensive in the long run. Dollar coins, however, have never found wide use for day-to-day transactions in the United States. One possible explanation for this is simply that people find coins inconvenient relative to paper currency. Accordingly, dollar coins would replace notes only if the public has no choice. Supporters of this explanation point out that high-denomination coins circulate only in countries that discontinued issuing the corresponding denomination notes. Some people argue that dollar coins and dollar bills can coexist, and they attribute the failure of previous dollar coins to circulate widely to other factors, such as physical characteristics of the coins. The Eisenhower dollar was said to be too bulky and the Susan B. Anthony (SBA) dollar too difficult to distinguish from the quarter. The golden dollar was designed to avoid many of the supposed impediments that kept previous dollar coins from circulating. The coin is the same size as the quarter, but is gold in color and, unlike the Susan B. Anthony dollar, is easily distinguished from the quarter by sight or touch. Furthermore, the new coin was specifically designed to have the same "electronic signature" as the SBA dollar so that the vending machine industry would not have to retool their machines. Despite a $45 million ad campaign, of the $1.1 billion dollar coins produced through September 30, 2000, approximately half of the new coins remain in the vaults of Federal Reserve Banks and the U.S. Mint as of October 20, 2000. The other half are in "circulation." It appears, however, that many of these are being hoarded, because few of the coins are observed in day-to-day transactions. Is the golden dollar more successful than the SBA dollar, which was introduced in 1979? It depends on how you measure it. Of the $682 million SBA dollars produced in 1979, only about $275 million were in circulation that year. In absolute terms, or on a per-capita basis, the initial year of the new golden dollar has been much more successful. Relative to the initial year’s nominal GDP or initial year’s currency component of the money supply, however, the golden dollar has been less successful. Some people argue that the new golden dollar will not circulate simultaneously with the dollar note until the demand by those who want to hoard the coin is met. This argument, however, is at odds with the fact that U.S. currency is supplied elastically. That is, currency is supplied to meet the public’s demand. If individuals want dollar coins (or two-dollar bills, fifty-cent coins or any other denomination currency) they simply request them from their bank. Banks, in turn, go to Federal Reserve Banks whose job it is to meet demand. In the final analysis, denominations of money fail to circulate because of lack of demand, not because of lack of supply. The fact that, to date, the new dollar coin has not been widely used in day-to-day transactions—even though it avoids the alleged physical impediments to the success of previous dollar coins—suggests that, given a choice, the public prefers dollar notes to dollar coins. --Daniel L. Thornton 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. MonetaryTrends 11/20/00 M2 and MZM Reserve Market Rates Billions of $ 5000 5% 4750 1% Percent 6.75 Effective Federal Funds Rate Expected Federal Funds Rate 6.50 5% 6.25 1% 6.00 4500 M2 4250 5.75 4000 5.50 5.25 3750 5.00 3500 MZM Discount Rate 4.75 3250 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: 11/19/99 7.25 10/20/00 11/17/00 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 Federal Funds Rate 6.50 6.52 6.51 Discount Rate 6.00 6.00 6.00 Prime Rate 9.50 9.50 9.50 Conventional Mortgage Rate 8.03 7.91 Aug 00 40 . 30 Treasury Yields Treasury Yields: 20 10 0 -10 1997 1998 1999 Sep 00 . . Oct 00 7.80 . . . 3-month constant maturity 6.28 6.18 6.29 6-month constant maturity 6.35 6.25 6.32 1-year constant maturity 6.18 6.13 6.01 3-year constant maturity 6.17 6.02 5.85 5-year constant maturity 6.06 5.93 5.78 10-year constant maturity 5.83 5.80 5.74 30-year constant maturity 5.72 5.83 5.80 2000 Federal Reserve Bank of St. Louis MonetaryTrends 11/20/00 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 11/20/00 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 10 Total 10 5 0 5 Federal -5 -10 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 30 20 25 15 20 15 10 10 Large Denomination 0 -5 Small Denomination Checkable -10 -5 -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 Billions of dollars 400 35 30 Savings 5 5 0 2000 350 Institutional funds 25 20 Retail funds 15 350 Repos (left) 300 250 250 200 200 10 5 300 150 Eurodollars (right) 150 1997 1998 1999 2000 100 1997 Federal Reserve Bank of St. Louis 1998 1999 2000 MonetaryTrends 11/20/00 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 11/20/00 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 11/20/00 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 11/20/00 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 11/20/00 Federal Funds Rate and Inflation Targets Percent 12 4% 3% 2% 1% 0% Target Inflation Rates 9 Actual 6 3 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 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 3 7500 Potential 2 7000 Actual 6500 1 6000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 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 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 *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 4 4-year moving average 10-year moving average 0 Actual -8 -4 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Federal Reserve Bank of St. Louis MonetaryTrends 11/20/00 Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent 9 8 7 Percent, daily data 6.9 Week ending: 11/19/99 10/20/00 11/17/00 Nov 2000 6.8 6.7 Dec 2000 6 6.6 5 Jan 2001 6.5 4 3 2y3y 5y 7y 10y 20y 30y 6.4 09/04 09/11 09/18 09/25 10/02 10/09 10/16 10/23 10/30 11/06 Rates on Selected Fed Funds Futures Contracts Implied Yields on Fed Funds Futures Percent, daily data Percent 6.6 6.6 09/15/2000 Nov 2000 6.5 6.5 11/17/2000 Dec 2000 6.4 Jan 2001 10/13/2000 6.4 6.3 09/04 09/11 09/18 09/25 10/02 10/09 10/16 10/23 10/30 11/06 Nov Dec Jan Feb Mar Apr 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 11/20/00 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 $ 12000 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 11/20/00 Gross Domestic Product 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 89 90 91 92 93 94 95 96 97 98 99 00 Real Gross Domestic Product Percent change from year ago 15 10 5 0 -5 83 84 85 86 87 88 Gross Domestic Product Price Index 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 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 M2 Percent change from year ago 20 15 10 5 0 83 84 85 Dashed lines indicate 10-year moving averages Federal Reserve Bank of St. Louis MonetaryTrends 11/20/00 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 11/20/00 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 1999Q4 Sep00 Oct00 2.56 3.21 3.31 3.47 6.05 5.83 5.80 5.74 Canada 2.36 2.65 2.45 2.73 5.84 5.77 5.81 5.79 France 1.00 1.50 1.49 1.89 6.00 6.04 5.93 5.92 Germany 0.96 1.78 1.62 2.05 5.27 5.21 5.26 5.21 Italy 2.06 2.36 2.50 2.63 5.60 5.57 5.64 5.60 -1.04 -0.65 -0.72 -0.66 1.73 1.76 1.88 1.83 1.47 2.30 3.13 3.20 5.20 5.29 5.34 5.19 United Kingdom 2000Q2 2000Q3 Percent United States Japan 2000Q1 Jul00 Aug00 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. Canada Germany Canada 0 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 11/20/00 Money Stock M1 Bank MZM M2 M3 Credit Monetary Base Reserves MSI M2 1995 . 1143.038 2906.094 3574.276 4500.290 3500.674 443.499 76.838 210.451 1996 . 1106.430 3096.352 3746.144 4796.868 3683.554 455.572 73.401 217.848 1997 . 1069.929 3318.533 3930.302 5179.493 3951.673 478.708 68.873 227.067 1998 . 1080.846 3705.324 4219.954 5711.132 4323.071 508.942 66.925 242.237 1999 . 1102.372 4160.793 4539.848 6214.518 4581.875 557.864 71.674 258.556 1998 1 1076.722 3524.565 4096.845 5499.247 4185.117 498.320 67.645 235.943 . 2 1078.669 3637.508 4174.504 5638.739 4247.774 502.020 66.044 239.950 . 3 1076.068 3746.166 4247.544 5763.433 4347.554 511.546 66.905 243.733 . 4 1091.926 3913.058 4360.921 5943.108 4511.838 523.881 67.105 249.320 1999 1 1097.202 4033.922 4443.218 6065.245 4510.308 536.335 67.691 253.370 . 2 1102.976 4128.850 4511.091 6157.138 4527.926 545.912 66.526 257.003 . 3 1098.086 4201.618 4572.090 6235.713 4590.179 557.968 68.111 260.280 . 4 1111.223 4278.781 4632.992 6399.975 4699.087 591.241 84.366 263.570 2000 1 1111.267 4366.961 4706.214 6580.535 4839.698 593.096 72.685 267.157 . 2 1107.818 4439.176 4781.936 6721.430 4989.784 586.037 67.690 270.860 . 3 1100.323 4522.591 4837.935 6859.606 5113.447 589.017 67.303 . 1998 Oct 1084.673 3860.033 4325.422 5887.683 4483.485 520.806 67.058 247.530 . Nov 1093.735 3915.665 4362.356 5944.979 4516.556 524.379 67.182 249.420 . Dec 1097.371 3963.475 4394.985 5996.662 4535.474 526.458 67.074 251.010 1999 Jan 1095.975 3998.674 4420.568 6028.712 4523.627 531.761 68.517 252.260 . Feb 1094.273 4040.172 4446.356 6078.405 4513.826 538.190 68.067 253.460 . Mar 1101.359 4062.920 4462.729 6088.617 4493.472 539.053 66.488 254.390 . Apr 1107.196 4100.797 4489.888 6124.902 4504.806 539.608 64.109 255.900 . May 1101.658 4130.658 4512.544 6157.601 4518.685 548.331 68.423 257.070 . Jun 1100.074 4155.094 4530.841 6188.911 4560.286 549.796 67.045 258.040 . Jul 1099.464 4179.464 4553.677 6213.402 4562.360 553.060 66.880 259.220 . Aug 1098.687 4203.238 4571.405 6232.780 4591.940 556.711 67.248 260.240 . Sep 1096.107 4222.152 4591.189 6260.957 4616.236 564.134 70.206 261.380 . Oct 1101.279 4246.124 4608.807 6313.939 4634.165 572.989 73.419 262.320 . Nov 1109.459 4275.530 4630.345 6394.879 4691.744 588.668 83.916 263.420 . Dec 1122.930 4314.689 4659.823 6491.107 4771.352 612.067 95.764 264.970 2000 Jan 1118.851 4348.900 4684.877 6538.999 4790.961 604.790 81.107 266.190 . Feb 1104.534 4348.998 4697.908 6562.089 4838.725 589.979 69.561 266.760 . Mar 1110.415 4402.986 4735.856 6640.517 4889.408 584.520 67.387 268.520 . Apr 1115.101 4435.779 4778.086 6692.360 4935.297 583.047 66.401 270.670 . May 1104.958 4435.227 4776.347 6714.383 5001.844 587.857 69.490 270.510 . Jun 1103.394 4446.521 4791.376 6757.548 5032.211 587.208 67.179 271.400 . . Jul 1104.436 4481.679 4806.140 6807.015 5068.284 588.018 67.240 . Aug 1101.194 4518.327 4836.237 6862.124 5111.289 588.442 67.379 . . Sep 1095.338 4567.768 4871.429 6909.680 5160.769 590.592 67.291 . . Oct 1098.931 4585.425 4888.760 6934.453 5135.155 592.721 67.052 . *All values are given in billions of dollars Federal Reserve Bank of St. Louis MonetaryTrends 11/20/00 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 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 2000 1 5.68 5.19 8.69 6.03 5.70 6.56 6.30 7.71 5.82 8.26 . 2 6.27 5.74 9.25 6.57 5.89 6.52 5.98 7.77 5.72 8.32 . 3 6.52 6.00 9.50 6.63 6.20 6.16 5.80 7.61 5.45 8.03 1998 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 . Mar 5.85 5.34 8.83 6.14 5.86 6.53 6.05 7.68 5.68 8.24 . Apr 6.02 5.50 9.00 6.28 5.82 6.36 5.85 7.64 5.60 8.15 . May 6.27 5.71 9.24 6.71 5.99 6.77 6.15 7.99 5.87 8.52 . Jun 6.53 6.00 9.50 6.73 5.86 6.43 5.93 7.67 5.69 8.29 . Jul 6.54 6.00 9.50 6.67 6.14 6.28 5.85 7.65 5.53 8.15 . Aug 6.50 6.00 9.50 6.61 6.28 6.17 5.72 7.55 5.43 8.03 . Sep 6.52 6.00 9.50 6.60 6.18 6.02 5.83 7.62 5.40 7.91 . Oct 6.51 6.00 9.50 6.67 6.29 5.85 5.80 7.55 5.46 7.80 *All values are given as a percent at an annual rate Federal Reserve Bank of St. Louis MonetaryTrends M1 MZM 11/20/00 M2 M3 Percent change from previous period 1995 . -0.21 -0.46 2.05 4.56 1996 . -3.20 6.55 4.81 6.59 1997 . -3.30 7.18 4.92 7.98 1998 . 1.02 11.66 7.37 10.26 1999 . 1.99 12.29 7.58 8.81 1998 1 0.73 2.84 1.93 2.65 . 2 0.18 3.20 1.90 2.54 . 3 -0.24 2.99 1.75 2.21 . 4 1.47 4.45 2.67 3.12 1999 1 0.48 3.09 1.89 2.06 . 2 0.53 2.35 1.53 1.52 . 3 -0.44 1.76 1.35 1.28 . 4 1.20 1.84 1.33 2.63 2000 1 0.00 2.06 1.58 2.82 . 2 -0.31 1.65 1.61 2.14 . 3 -0.68 1.88 1.17 2.06 1998 Oct 0.60 1.63 0.97 1.09 . Nov 0.84 1.44 0.85 0.97 . Dec 0.33 1.22 0.75 0.87 1999 Jan -0.13 0.89 0.58 0.53 . Feb -0.16 1.04 0.58 0.82 . Mar 0.65 0.56 0.37 0.17 . Apr 0.53 0.93 0.61 0.60 . May -0.50 0.73 0.50 0.53 . Jun -0.14 0.59 0.41 0.51 . Jul -0.06 0.59 0.50 0.40 . Aug -0.07 0.57 0.39 0.31 . Sep -0.23 0.45 0.43 0.45 . Oct 0.47 0.57 0.38 0.85 . Nov 0.74 0.69 0.47 1.28 . Dec 1.21 0.92 0.64 1.50 2000 Jan -0.36 0.79 0.54 0.74 . Feb -1.28 0.00 0.28 0.35 . Mar 0.53 1.24 0.81 1.20 . Apr 0.42 0.74 0.89 0.78 . May -0.91 -0.01 -0.04 0.33 . Jun -0.14 0.25 0.31 0.64 . Jul 0.09 0.79 0.31 0.73 . Aug -0.29 0.82 0.63 0.81 . Sep -0.53 1.09 0.73 0.69 . Oct 0.33 0.39 0.36 0.36 Federal Reserve Bank of St. Louis 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.stanford.edu/~wfsharpe/mia/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.