Full text of Monetary Trends : December 2002
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December 2002 MonetaryTrends Exposure of U.S. Banks to Problem Syndicated Loans The three federal bank supervisory agencies—the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation—have conducted joint reviews of shared national credits (SNCs) annually since 1977. These SNCs (commonly called “syndicated loans”) are currently defined as loans or loan commitments of at least $20 million that are shared by three or more financial institutions. The reviews conducted during May and June 2002 covered $1.9 trillion of loan commitments to 5,542 borrowers.1 Of these loan commitments, outstanding loans were $692 billion, which is about 69 percent of the commercial and industrial loans of all commercial banks (including foreign related institutions). When examiners rate these credits, they look for any weaknesses. If they identify well-defined weaknesses, examiners rate the credits as “substandard,” “doubtful,” or “loss.” The sum of the credits in these three categories is called total classified credits. The credits that examiners rate as doubtful have more serious problems than the credits they rate as substandard. Credits rated as loss are considered uncollectable. In addition to classified credits, examiners rate some credits as “special mention” because of potential weaknesses that, if left uncorrected, could lead to further deterioration. The 2002 report on SNCs includes some innovations. The criterion for identifying U.S. banks and foreign banking organizations was changed in 2002. Credits of the U.S. chartered subsidiaries of foreign banking organizations are now reported as credits of foreign banking organizations, whereas in prior SNCs reports these credits were reported as credits of U.S. banks. The 2002 report incorporates this new criterion retroactively for data on the credits of domestic and foreign banking organizations back to 2000. In addition, the 2002 report presents the specific allocations of classified and special mention credits among U.S. banks, foreign owned banking organizations, and nonbank lenders to firms in the industry category that had the greatest deterioration in loan quality in the current year: telecommunications and cable. The figure indicates that the share of adversely rated SNCs has increased since 1998 to a level in 2002 that is comparable to that in the early 1990s. The table, however, presents a more sanguine view of credit quality at U.S. banks. Classified SNCs tend to be concentrated among the credits of nonbank lenders. In addition, the percentages of credits in the telecommunications and cable industry that are classified or subject to special mention were higher for nonbank lenders than for U.S. or foreign banks. The difference in classification rates for banks and those for nonbank lenders appears to reflect the distinct choices that these two types of institutions make regarding the risk characteristics of the credits they wish to hold in their portfolios. The 2002 report on SNCs describes this market segmentation as follows: “The significantly higher classification rate for nonbanks is consistent with market observations that nonbanks have largely focused on subinvestment grade investments and have been purchasers of distressed loans in the secondary market at discounts to par.” —R. Alton Gilbert 1 The SNCs reports are available on the Internet at <www.federalreserve.gov/ releases/snc/default.htm>. Adversely Related Credits Percent of Commitment 18 Special Mention 16 Classified 14 12 10 8 6 4 2 0 91 92 93 94 95 96 97 98 99 00 01 02 Credits Classified as Substandard, Doubtful, or Loss Type of lender 2002 2001 2000 U.S. Bank Foreign banking organization Nonbank lender 6.5% 7.3 22.6 5.2% 4.7 14.5 2.8% 2.6 10.2 Views expressed do not necessarily reflect official positions of the Federal Reserve System. research.stlouisfed.org 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] × 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] × 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 to the Public Affairs Department, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, MO 63166-0442 or by calling (314) 444-8809. Subscription forms may also be completed online at research.stlouisfed.org/order/pubform.php. For more information on data in this publication, please visit research.stlouisfed.org/fred or call (314) 444-8590. The entire publication is also available on the Internet at research.stlouisfed.org/publications/mt. MonetaryTrends 11/20/02 Reserve Market Rates M2 and MZM Billions of dollars Percent 7.00 6150 6.50 5900 6.00 5650 5.50 Discount Rate 5.00 5400 4.50 5150 M2 4.00 4900 3.50 3.00 4650 2.50 4400 MZM 2.00 4150 1.50 3900 1.00 1999 1999 2000 2000 2001 2001 2002 2002 2003 Effective Federal Funds Rate Intended Federal Funds Rate 1999 1999 2000 2000 Adjusted Monetary Base Treasury Yield Curve Percent change at an annual rate Percent 60 6.0 50 5.5 5.0 40 2001 2001 2002 2002 2003 Week Ending: 11/16/01 10/18/02 11/15/02 4.5 30 4.0 20 3.5 10 3.0 0 2.5 -10 2.0 -20 1.5 -30 1.0 1999 1999 2000 2000 2001 2001 2002 2002 3m 1y 2y 3y 5y 7y Total Bank Credit Interest Rates Sep 02 Oct 02 Federal Funds Rate Aug 02 1.74 1.75 1.75 Discount Rate 1.25 1.25 1.25 Prime Rate 4.75 4.75 4.75 Conventional Mortgage Rate 6.29 6.09 Percent change at an annual rate 50 40 30 . Treasury Yields Treasury Yields: 20 10 0 1999 2000 2000 2001 2001 2002 2002 . . 6.11 . . . 3-Month Constant Maturity 1.65 1.66 1.61 6-Month Constant Maturity 1.64 1.64 1.59 1-Year Constant Maturity 1.76 1.72 1.65 3-Year Constant Maturity 2.52 2.32 2.25 5-Year Constant Maturity 3.29 2.94 2.95 10-Year Constant Maturity 4.26 3.87 3.94 -10 1999 10y 2003 2003 Federal Reserve Bank of St. Louis MonetaryTrends 11/20/02 MZM and M1 Percent change from year ago 25 20 15 10 MZM 5 0 M1 -5 -10 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 M2 Percent change from year ago 15 10 5 0 -5 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 M3 Percent change from year ago 15 10 5 0 -5 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 Monetary Services Index - M2 Percent change from year ago 15 10 5 0 -5 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 Federal Reserve Bank of St. Louis 98 1998 99 1999 00 2000 01 2001 02 2002 2003 MonetaryTrends 11/20/02 Adjusted Monetary Base Percent change from year ago 20 15 10 5 0 -5 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 Domestic Nonfinancial Debt Currency Held by the Nonbank Public Percent change from year ago Percent change from year ago 2003 15 15 10 Total 10 5 0 5 Federal -5 -10 0 1995 1996 1997 1998 1999 2000 2001 2002 1995 1996 1997 1998 1999 2000 2001 2002 2003 1999 1999 2000 2000 2001 2001 2002 2002 Time Deposits Checkable and Savings Deposits Percent change from year ago Percent change from year ago 30 2003 30 25 25 Large Denomination 20 20 15 15 10 10 5 Savings 5 0 0 Small Denomination -5 -5 -10 -10 -15 Checkable -15 1999 1999 2000 2000 2001 2001 2002 2002 1999 2003 Money Market Mutual Fund Shares 2000 2000 2001 2001 2002 2002 Billions of dollars Billions of dollars 450 400 Repos (left) 400 Institutional Funds 350 350 300 300 250 250 Retail Funds 200 Eurodollars (right) 200 150 150 1999 1999 2000 2000 2001 2001 2002 2002 2003 Repurchase Agreements and Eurodollars Percent change from year ago 55 50 45 40 35 30 25 20 15 10 5 0 -5 1999 100 1999 2003 Federal Reserve Bank of St. Louis 2000 2001 2002 MonetaryTrends 11/20/02 M1 Percent change at an annual rate 80 60 40 20 0 -20 -40 -60 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 MZM Percent change at an annual rate 40 30 20 10 0 -10 -20 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 M2 Percent change at an annual rate 40 30 20 10 0 -10 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 M3 Percent change at an annual rate 40 30 20 10 0 -10 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 Federal Reserve Bank of St. Louis 98 1998 99 1999 00 2000 01 2001 02 2002 2003 MonetaryTrends 11/20/02 Adjusted and Required Reserves Billions of dollars 100 80 Adjusted 60 Required 40 20 0 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 Total Borrowings, nsa Excess Reserves plus RCB Contracts Billions of dollars Billions of dollars 3.5 28 3.0 24 2.5 2003 20 2.0 16 1.5 12 1.0 8 0.5 0.0 4 1995 1996 1997 1998 1999 2000 2001 2002 1995 1996 1997 1998 1999 2000 2001 2002 2003 1995 1996 1997 1998 1999 2000 2001 2002 1995 1996 1997 1998 1999 2000 2001 2002 2003 Nonfinancial Commercial Paper Percent change from year ago 60 40 20 0 -20 -40 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 Consumer Credit Percent change from year ago 20 15 10 5 0 -5 -10 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 Federal Reserve Bank of St. Louis 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 MonetaryTrends 11/20/02 Inflation and Inflation Expectations Percent 10 8 6 Federal Reserve Bank of Philadelphia Humphrey-Hawkins CPI Inflation Range 4 University of Michigan 2 CPI Inflation 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 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 10-Year less 3-Month 4 2 0 10-Year less 3-Year 3-Year less 3-Month -2 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 Real Interest Rates Percent, Real rate = Nominal rate less CPI inflation 8 6 1-Year Treasury Yield 4 2 Federal Funds Rate 0 -2 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 Federal Reserve Bank of St. Louis 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 MonetaryTrends 11/20/02 Short-Term Interest Rates Percent 14 12 90-Day Commercial Paper 10 8 Prime Rate 6 4 3-Month Treasury Yield 2 0 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 Long-Term Interest Rates Percent 15 13 Conventional Mortgage 11 9 7 Corporate Aaa 5 10-Year Treasury Yield 3 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 Long-Term Interest Rates Short-Term Interest Rates Percent Percent 9 00 2000 01 2001 02 2002 2003 9 8 8 90-Day Commercial Paper 7 Corporate Baa 7 6 6 5 3-Month Treasury Yield 4 5 3 10-Year Treasury Yield 4 2 3 1 1999 2000 1999 2001 2000 2002 2001 1999 2002 2003 2000 1999 2001 2000 2002 2001 2002 2003 FOMC Intended Federal Funds Rate and Discount Rate Percent 12 10 Intended Federal Funds Rate 8 6 Discount Rate 4 2 0 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 Federal Reserve Bank of St. Louis 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 MonetaryTrends 11/20/02 Federal Funds Rate and Inflation Targets Percent 12 4% 3% 2% 1% 0% Target Inflation Rates 9 Actual 6 3 0 1993 1993 1994 1995 1994 1995 1996 1996 1997 1997 Calculated federal funds rate is based on Taylor’s rule. See notes on page 19. 1998 1999 1998 1999 2000 2000 2001 2002 2001 2002 2003 Components of Taylor’s Rule Actual and Potential Real GDP PCE Inflation and Projections Billions of chain-weighted 1996 dollars Percent change from year ago 6 10000 9500 5 Actual 9000 4 8500 3 Potential 8000 2 7500 1 7000 6500 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 The shaded region shows the range of projections published in the Monetary Policy Report to Congress. Monetary Base Growth* and Inflation Targets Percent 12 Actual 9 6 3 0% 1% 2% 3% 4% Target Inflation Rates 0 1993 93 1994 1995 94 95 1996 96 1997 97 1998 1999 98 99 2000 2001 00 2002 01 02 03 *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 4 1-Year Moving Average 4 10-Year Moving Average 0 0 4-Year Moving Average -4 -8 -4 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 1993 03 93 1994 94 Federal Reserve Bank of St. Louis 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 03 MonetaryTrends 11/20/02 Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent 8 6 Percent, daily data 1.9 Week Ending: Dec 2002 11/16/01 10/18/02 11/15/02 || 1.8 1.7 1.6 4 Nov 2002 1.5 2 Jan 2003 1.4 0 2y 3y 5y 7y 10y 1.3 09/16 Rates on Selected Fed Funds Futures Contracts Percent 1.7 1.7 Nov 2002 || || 1.5 Dec 2002 09/30 10/07 10/14 10/21 10/28 11/04 11/11 11/18 Implied Yields on Fed Funds Futures Percent, daily data 1.6 09/23 09/13/2002 1.6 1.5 10/11/2002 1.4 1.4 1.3 Jan 2003 1.3 11/15/2002 1.2 1.2 1.1 09/16 09/23 09/30 10/07 10/14 10/21 10/28 11/04 11/11 11/18 Nov Dec Jan Feb Mar Apr Inflation-Protected Treasury Yields Inflation-Protected Treasury Yield Spreads Percent, weekly data Percent, weekly data 5.0 4 10-Year 4.5 3 4.0 10-Year 30-Year 30-Year 3.5 2 3.0 1 2.5 2.0 0 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 1997 2003 1997 1998 1998 1999 1999 2000 2000 2001 2001 Inflation-Indexed 30-Year Bonds Inflation-Indexed 10-Year Bonds Percent, weekly data Percent, weekly data 6 2002 2002 2003 6 5 5 Canada U.S. 4 4 U.S. 3 3 U.K. U.K. 2 2 1 1 1998 13880 1999 14245 2000 14610 2001 14976 2002 15341 1998 15706 13880 Federal Reserve Bank of St. Louis 1999 14245 2000 14610 2001 14976 2002 15341 15706 MonetaryTrends 11/20/02 MZM Velocity and Opportunity Cost Velocity = Nominal GDP / MZM Opportunity cost 3.5 10.0 3.0 7.5 Velocity 2.5 5.0 2.0 2.5 Opportunity Cost (3-mo T-bill rate less MZM own rate) 1.5 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 0.0 01 02 M2 Velocity and Opportunity Cost Velocity = Nominal GDP / M2 Opportunity cost 2.25 10.0 Velocity 2.00 7.5 Opportunity Cost (5-yr T-bond rate less M2 own rate) 1.75 5.0 1.50 2.5 Opportunity Cost (3-mo T-bill rate less M2 own rate) 1.25 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 0.0 01 02 M2, MZM, and Nominal GDP Billions of dollars 12000 10000 Nominal GDP 8000 6000 M2 4000 MZM 2000 0 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 Interest Rates Percent 15 10 5-yr Bond 5 3-mo Bill M2 Own MZM Own 0 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 Federal Reserve Bank of St. Louis 98 1998 99 1999 00 2000 01 2001 02 2002 2003 MonetaryTrends 11/20/02 Gross Domestic Product Percent change from year ago 20 15 10 5 0 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 Dashed lines indicate 10-year moving averages. Real Gross Domestic Product Percent change from year ago 15 10 5 0 -5 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 Dashed lines indicate 10-year moving averages. Gross Domestic Product Price Index Percent change from year ago 20 15 10 5 0 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 2003 Dashed lines indicate 10-year moving averages. M2 Percent change from year ago 20 15 10 5 0 85 1985 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 Dashed lines indicate 10-year moving averages. Federal Reserve Bank of St. Louis 98 1998 99 1999 00 2000 01 2001 02 2002 2003 MonetaryTrends 11/20/02 Bank Credit Percent change from year ago 20 15 10 5 0 1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 Investment Securities in Bank Credit at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 Total Loans and Leases in Bank Credit at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 Commercial and Industrial Loans at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 -10 1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 Federal Reserve Bank of St. Louis 2000 2000 2001 2001 2002 2002 2003 MonetaryTrends 11/20/02 Standard & 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 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 Recent Inflation and Long-Term Interest Rates Consumer Price Inflation Rates Long-Term Government Bond Rates Percent change from year ago Percent 2001Q4 2002Q1 2002Q2 2002Q3 Jul02 Aug02 Sep02 Oct02 United States 1.89 1.25 1.30 1.58 4.65 4.26 3.87 3.94 Canada 1.10 1.53 1.33 2.33 5.73 5.57 5.35 . France 1.43 2.13 1.63 1.75 5.48 4.99 4.89 . Germany 1.79 1.90 1.16 1.03 4.87 4.59 4.38 4.46 Italy 2.40 2.41 2.27 2.41 5.11 4.83 4.62 4.76 -0.98 -1.40 -0.90 -0.80 1.20 1.13 1.01 0.97 1.04 1.21 1.23 1.53 5.01 4.71 4.49 . Japan United Kingdom Inflation and Long-Term Interest Rate Differentials Percent Percent 3 3 Canada U.K. Canada 0 0 U.K. Germany Germany Japan -3 -3 Japan Inflation differential = Foreign inflation less U.S. inflation Long-term rate differential = Foreign rate less U.S. rate -6 -6 14245 1999 14610 2000 14976 2001 15341 2002 15706 14245 1999 Federal Reserve Bank of St. Louis 14610 2000 14976 2001 15341 2002 15706 MonetaryTrends 11/20/02 Money Stock Bank Adjusted M1 MZM M2 M3 Credit Monetary Base Reserves MSI M2 1997. 1069.292 3320.210 3920.471 5210.736 3956.303 478.708 69.523 226.513 1998. 1079.990 3707.960 4206.697 5751.029 4329.598 508.942 67.808 241.523 1999. 1101.865 4167.938 4524.086 6253.694 4587.501 557.865 72.360 257.841 2000. 1104.049 4505.591 4799.392 6839.369 5034.175 590.821 68.319 272.476 2001. 1136.965 5216.025 5218.558 7618.901 5352.155 623.788 68.974 296.192 2000 1 1112.681 4377.898 4693.259 6625.996 4841.550 593.102 72.390 266.760 . 2 1108.119 4446.690 4763.135 6754.989 4991.857 586.045 67.097 270.320 . 3 1102.127 4548.192 4834.023 6923.689 5119.709 589.054 66.636 274.443 . 4 1093.270 4649.583 4907.151 7052.803 5183.584 595.084 67.151 278.380 2001 1 1100.703 4849.806 5026.132 7275.543 5273.939 604.848 66.543 285.123 . 2 1117.304 5089.052 5147.002 7526.923 5322.361 610.939 65.201 292.320 . 3 1161.909 5320.355 5288.051 7717.745 5370.672 633.771 73.522 300.383 . 4 1167.943 5604.885 5413.045 7955.393 5441.647 645.594 70.629 306.940 2002 1 1184.732 5715.864 5486.898 8051.336 5431.981 663.333 70.295 311.413 . 2 1182.989 5789.149 5532.405 8117.472 5503.616 674.116 69.181 314.710 . 3 1191.596 5949.280 5677.744 8290.634 5675.246 684.783 69.508 322.513 2000 Oct 1099.233 4618.513 4884.395 7011.469 5153.280 593.064 66.688 277.200 . Nov 1091.722 4638.705 4898.486 7031.836 5174.371 595.549 67.686 277.940 . Dec 1088.856 4691.532 4938.571 7115.105 5223.102 596.639 67.078 280.000 2001 Jan 1095.844 4760.943 4983.711 7213.111 5264.772 600.886 68.095 282.510 . Feb 1098.905 4856.695 5022.825 7280.164 5269.161 607.234 66.556 284.990 . Mar 1107.361 4931.779 5071.861 7333.353 5287.883 606.425 64.979 287.870 . Apr 1109.741 5003.402 5114.259 7436.524 5311.607 605.800 63.239 290.330 . May 1116.618 5085.150 5140.091 7528.287 5327.566 613.259 67.119 292.060 . Jun 1125.552 5178.605 5186.657 7615.957 5327.910 613.759 65.246 294.570 . Jul 1138.562 5239.238 5226.306 7658.659 5332.102 619.440 66.654 296.730 . Aug 1147.242 5277.235 5263.764 7670.571 5354.141 627.455 66.378 299.200 . Sep 1199.923 5444.593 5374.082 7824.004 5425.774 654.419 87.534 305.220 . Oct 1160.805 5516.350 5367.391 7871.133 5420.382 644.249 72.955 304.610 . Nov 1163.751 5607.126 5413.687 7961.773 5457.163 644.415 69.476 307.010 . Dec 1179.272 5691.179 5458.057 8033.273 5447.396 648.118 69.457 309.200 2002 Jan 1182.471 5687.932 5468.001 8025.216 5429.522 655.871 70.667 310.050 . Feb 1184.383 5728.475 5499.364 8065.694 5435.113 667.213 71.242 312.020 . Mar 1187.341 5731.185 5493.330 8063.097 5431.308 666.914 68.976 312.170 . Apr 1176.272 5719.756 5476.582 8049.867 5449.441 667.686 68.476 311.800 . May 1182.814 5799.099 5542.452 8130.350 5507.728 676.057 70.542 315.170 . Jun 1189.882 5848.592 5578.180 8172.198 5553.679 678.604 68.525 317.160 . Jul 1197.839 5909.647 5639.208 8231.084 5601.054 682.344 68.939 320.080 . Aug 1184.271 5959.368 5684.556 8305.778 5683.973 684.570 69.020 322.810 . Sep 1192.677 5978.825 5709.468 8335.040 5740.712 687.435 70.564 324.650 . Oct 1201.545 6000.898 5759.080 8341.853 5768.434 690.441 70.702 327.430 *All values are given in billions of dollars. Federal Reserve Bank of St. Louis MonetaryTrends 11/20/02 Federal Discount Prime 3-mo Treasury Yields Corporate S&L Aaa Bonds Aaa Bonds Conventional Funds Rate Rate CDs 3-mo 3-yr 10-yr Mortgage 1997. 5.46 5.00 8.44 5.62 5.20 6.10 6.35 7.26 5.32 7.60 1998. 5.35 4.92 8.35 5.47 4.91 5.14 5.26 6.53 4.93 6.94 1999. 4.97 4.62 7.99 5.33 4.78 5.49 5.64 7.04 5.28 7.43 2000. 6.24 5.73 9.23 6.46 6.00 6.22 6.03 7.62 5.58 8.06 2001. 3.89 3.41 6.92 3.69 3.47 4.08 5.02 7.08 4.99 6.97 2000 1 5.68 5.19 8.69 6.03 5.70 6.56 6.48 7.71 5.82 8.26 . 2 6.27 5.74 9.25 6.57 5.89 6.52 6.18 7.77 5.72 8.32 . 3 6.52 6.00 9.50 6.63 6.20 6.16 5.89 7.61 5.45 8.03 . 4 6.47 6.00 9.50 6.59 6.20 5.63 5.57 7.40 5.32 7.64 2001 1 5.59 5.11 8.62 5.26 4.95 4.64 5.05 7.08 5.03 7.01 . 2 4.33 3.83 7.34 4.10 3.75 4.43 5.27 7.22 5.11 7.13 . 3 3.50 3.06 6.57 3.34 3.24 3.93 4.98 7.11 4.87 6.97 . 4 2.13 1.64 5.16 2.06 1.94 3.33 4.77 6.92 4.97 6.78 2002 1 1.73 1.25 4.75 1.82 1.76 3.75 5.08 6.62 5.02 6.97 . 2 1.75 1.25 4.75 1.83 1.75 3.77 5.10 6.71 5.01 6.81 . 3 1.74 1.25 4.75 1.76 1.67 2.62 4.26 6.35 4.72 6.29 2000 Oct 6.51 6.00 9.50 6.67 6.29 5.85 5.74 7.55 5.46 7.80 . Nov 6.51 6.00 9.50 6.65 6.36 5.79 5.72 7.45 5.38 7.75 . Dec 6.40 6.00 9.50 6.45 5.94 5.26 5.24 7.21 5.11 7.38 2001 Jan 5.98 5.52 9.05 5.62 5.29 4.77 5.16 7.15 4.99 7.03 . Feb 5.49 5.00 8.50 5.26 5.01 4.71 5.10 7.10 5.09 7.05 . Mar 5.31 4.81 8.32 4.89 4.54 4.43 4.89 6.98 5.00 6.95 . Apr 4.80 4.28 7.80 4.53 3.97 4.42 5.14 7.20 5.14 7.08 . May 4.21 3.73 7.24 4.02 3.70 4.51 5.39 7.29 5.15 7.15 . Jun 3.97 3.47 6.98 3.74 3.57 4.35 5.28 7.18 5.03 7.16 . Jul 3.77 3.25 6.75 3.66 3.59 4.31 5.24 7.13 4.79 7.13 . Aug 3.65 3.16 6.67 3.48 3.44 4.04 4.97 7.02 4.89 6.95 . Sep 3.07 2.77 6.28 2.87 2.69 3.45 4.73 7.17 4.93 6.82 . Oct 2.49 2.02 5.53 2.31 2.20 3.14 4.57 7.03 4.89 6.62 . Nov 2.09 1.58 5.10 2.03 1.91 3.22 4.65 6.97 4.85 6.66 . Dec 1.82 1.33 4.84 1.83 1.72 3.62 5.09 6.77 5.18 7.07 2002 Jan 1.73 1.25 4.75 1.74 1.68 3.56 5.04 6.55 5.05 7.00 . Feb 1.74 1.25 4.75 1.82 1.76 3.55 4.91 6.51 4.93 6.89 . Mar 1.73 1.25 4.75 1.91 1.83 4.14 5.28 6.81 5.09 7.01 . Apr 1.75 1.25 4.75 1.87 1.75 4.01 5.21 6.76 5.09 6.99 . May 1.75 1.25 4.75 1.82 1.76 3.80 5.16 6.75 5.03 6.81 . Jun 1.75 1.25 4.75 1.81 1.73 3.49 4.93 6.63 4.92 6.65 . Jul 1.73 1.25 4.75 1.79 1.71 3.01 4.65 6.53 4.81 6.49 . Aug 1.74 1.25 4.75 1.73 1.65 2.52 4.26 6.37 4.78 6.29 . Sep 1.75 1.25 4.75 1.76 1.66 2.32 3.87 6.15 4.58 6.09 . Oct 1.75 1.25 4.75 1.73 1.61 2.25 3.94 6.32 4.66 6.11 *All values are given as a percent at an annual rate. Federal Reserve Bank of St. Louis MonetaryTrends M1 11/20/02 MZM M2 M3 Percent change at an annual rate 1997. -3.31 7.22 4.88 8.29 1998. 1.00 11.68 7.30 10.37 1999. 2.03 12.41 7.54 8.74 2000. 0.20 8.10 6.09 9.37 2001. 2.98 15.77 8.73 11.40 2000 1 0.29 7.41 5.92 10.68 . 2 -1.64 6.29 5.96 7.79 . 3 -2.16 9.13 5.95 9.99 . 4 -3.21 8.92 6.05 7.46 2001 1 2.72 17.22 9.70 12.63 . 2 6.03 19.73 9.62 13.82 . 3 15.97 18.18 10.96 10.14 . 4 2.08 21.39 9.45 12.32 2002 1 5.75 7.92 5.46 4.82 . 2 -0.59 5.13 3.32 3.29 . 3 2.91 11.06 10.51 8.53 4.08 2000 Oct 0.16 6.02 4.35 . Nov -8.20 5.25 3.46 3.49 . Dec -3.15 13.67 9.82 14.21 2001 Jan 7.70 17.75 10.97 16.53 . Feb 3.35 24.13 9.42 11.16 . Mar 9.23 18.55 11.72 8.77 . Apr 2.58 17.43 10.03 16.88 . May 7.44 19.61 6.06 14.81 . Jun 9.60 22.05 10.87 13.97 . Jul 13.87 14.05 9.17 6.73 . Aug 9.15 8.70 8.60 1.87 . Sep 55.10 38.06 25.15 24.00 . Oct -39.12 15.82 -1.49 7.23 . Nov 3.05 19.75 10.35 13.82 . Dec 16.00 17.99 9.84 10.78 2002 Jan 3.26 -0.68 2.19 -1.20 . Feb 1.94 8.55 6.88 6.05 . Mar 3.00 0.57 -1.32 -0.39 . Apr -11.19 -2.39 -3.66 -1.97 . May 6.67 16.65 14.43 12.00 . Jun 7.17 10.24 7.74 6.18 . Jul 8.02 12.53 13.13 8.65 . Aug -13.59 10.10 9.65 10.89 . Sep 8.52 3.92 5.26 4.23 . Oct 8.92 4.43 10.43 0.98 Federal Reserve Bank of St. Louis 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: 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). 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 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). 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 research.stlouisfed.org/aggreg/newbase.html. 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; additional data are available 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 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: MZM, or “Money, Zero Maturity,” includes the zero maturity, or immediately available, components of M3. MZM equals M2 minus smalldenomination 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 Anderson and Rasche (2001) and research.stlouisfed.org/aggreg/swdata.html. For analytical purposes, MZM largely replaces M1. The 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 shows constant maturity yields calculated by the U.S. Treasury Department for securities with 3 months and 1, 2, 3, 5, 7, and 10 years to maturity. Daily data and descriptions are available at research.stlouisfed.org/fred/data/wkly.html. See also Federal Reserve Bulletin, table 1.35. The 30-year constant maturity series was discontinued by the Treasury Department 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 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 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 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 ∆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 fouryear 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 research.stlouisfed.org/aggreg/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,... , 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 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 Yields are yields on the most recently issued inflation-protected securities of 10- and 30-year original maturities. Inflation-Protected Treasury Yield Spreads equal, for 10- and 30-year maturities, the difference between the yields on the most recently issued inflation-protected securities and the unadjusted bond yields of similar maturity. Inflation-Indexed 30-Year Bonds shows the yield of an inflation-indexed bond that is scheduled to mature in approximately (but not greater than) 30 years. The current bond for Canada has a maturity date of 12/01/2031, the current U.K. bond has a maturity date of 7/22/2030, and the current U.S. bond has a maturity date of 4/15/2032. Inflation-Indexed 10-Year Bonds shows the yield of an inflation-indexed bond that is scheduled to mature in approximately (but not greater than) 10 years. The current U.K. bond has a maturity date of 8/23/2011 and the current U.S. bond has a maturity date of 1/15/2011. 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 constant maturity yield. Page 13: Real Gross Domestic Product is GDP as measured in chained 1996 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 1996 dollars. Bureau of Economic Analysis GDP. Bureau of Labor Statistics CPI. 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. 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 & 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, 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, 1994-1999,” Federal Reserve Bank of St. Louis Review, January/February, pp. 51-72. ____ , 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, 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. ____(1993). “Specification and Analysis of a Monetary Policy Rule for Japan,” Bank of Japan Monetary and Economic Studies, November, pp. 1-45. Page 14: Investment Securities are all securities held by commercial banks in both investment and trading accounts. 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 on the Board of Governors of the Federal Reserve System’s H.15 release. Nelson, Charles R. and Andrew F. Siegel (1987). “Parsimonious Modeling of Yield Curves,” Journal of Business, October, pp. 473-89. Sources 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. Bank of Canada Canadian inflation-linked bond yields and long-term interest rates. Bank of England U.K. inflation-linked bond yields. Sharpe, William F. (1997). Macro-Investment Analysis, on-line textbook available at www.stanford.edu/~wfsharpe/mia/mia.htm. 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: Articles from this Bank’s Review are available on the Internet at research.stlouisfed.org/publications/review/.