Full text of Monetary Trends : January 2004
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MonetaryTrends January 2004 Making Monetary Policy More Transparent Not all changes in the Federal Open Market Committee’s (FOMC’s) target for the federal funds rate reflect a change in the stance of monetary policy. Hence, the FOMC could provide more information about its monetary policy objective by announcing whether specific target changes reflect a change in the stance of monetary policy or are responses to changing economic conditions intended to maintain the current policy. Such a practice has precedent: Beginning in 1963, the Fed began announcing whether specific discount rate changes reflected a change in the stance of policy or merely realigned the discount rate with market interest rates. Prior to 1963, it was difficult for market analysts to distinguish between “policy” and “technical” discount rate changes and, consequently, the market reacted to all discount rate changes. When the Fed began announcing the extent to which discount rate changes were made for technical as opposed to policy reasons, the market no longer reacted to purely technical discount rate adjustments. The Fed’s announcements appear to have eliminated uncertainty about why the discount rate was changed.1 An analogous problem exists for interpreting changes in the FOMC’s funds rate target. Unlike the discount rate, the federal funds rate is determined by the market. The FOMC merely sets a target for the funds rate. In the absence of offsetting action by the Fed, the funds rate, like all market rates, responds to changing economic conditions. For example, an increase in expected inflation will tend to cause market interest rates, including the funds rate, to rise. Similarly, the onset of a recession or period of slow economic growth will cause the real rate of interest to fall and put pressure on the funds rate to decline as well. If the FOMC resists these pressures in order to maintain its target for the funds rate, it will, in effect, change the stance of monetary policy. For example, if changing inflation expectations put pressure on the funds rate to rise, the FOMC must ease policy if it desires to maintain its existing funds rate target. On the other hand, the stance of monetary policy is unchanged if the FOMC raises its target rate to correspond to the increase in expected inflation. Monetary policy becomes tighter only if the FOMC raises its target by more than enough to accommodate the increase in expected inflation. Similarly, if the FOMC does not wish to change the stance of monetary policy when economic forces are driving nominal interest rates down, it must reduce its funds rate target by precisely the amount of the effect of the changed economic circumstances. The endogenous behavior of the funds rate under an unchanged monetary policy is illustrated by the so-called Taylor rule, shown on page 10. The Taylor rule can be derived from a model in which policymakers set a funds rate target in an attempt to minimize a specific weighted average of the deviations of inflation from a target and output (real GDP) from potential output. The funds rate target is changed in response to changes in the rate of inflation or output growth, relative to targeted inflation and potential output; however, the stance of monetary policy is unchanged so long as the policymaker does not change the weights he assigns to the inflation and output objectives. While the FOMC has never followed the Taylor rule, it illustrates the sense in which changes in the funds rate need not correspond to changes in monetary policy. Because interest rates are affected by many of the same economic forces that cause policymakers to adjust their target for the funds rate, it is difficult to know whether a change in the target represents a change in stance of monetary policy or is merely an effort by the FOMC to maintain the existing stance of policy. In practice, it is difficult even for the FOMC to gauge how much the funds rate would move in the absence of actions to maintain it. Nevertheless, the FOMC could enhance the transparency of monetary policy by announcing whether target changes are intended to change the stance of monetary policy, maintain it, or reflect some of each. —Daniel L. Thornton 1 See Thornton: “Lifting the Veil of Secrecy from Monetary Policy: Evidence from the Fed’s Early Discount Rate Policy.” Journal of Money, Credit, and Banking, May 2000, 32(2), pp. 155-67. Views expressed do not necessarily reflect official positions of the Federal Reserve System. Available on the web at 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 or to: The February 2004 issue of Monetary Trends will include benchmark revisions to the GDP series on pages 10, 12, and 13. stlsFRED@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/fred2 or call (314) 444-8590. The entire publication is also available on the Internet at research.stlouisfed.org/publications/mt. updated through 12/15/03 Monetary Trends Reserve Market Rates M2 and MZM Billions of dollars Percent 7.00 6650 Effective Federal Funds Rate Intended Federal Funds Rate 6.50 6400 6.00 6150 5.50 5900 5.00 4.50 5650 M2 4.00 5400 3.50 5150 3.00 4900 2.50 Primary Credit Rate Discount Rate 2.00 4650 1.50 MZM 4400 1.00 0.50 4150 2000 2000 2001 2001 2002 2002 2003 2003 2004 Adjusted Monetary Base 2000 2000 2001 2001 2002 2002 2003 2003 2004 Treasury Yield Curve Percent change at an annual rate Percent 50 6.0 40 5.5 5.0 30 Week Ending: 12/13/02 11/14/03 12/12/03 4.5 20 4.0 10 3.5 0 3.0 2.5 -10 2.0 -20 1.5 -30 1.0 -40 0.5 2000 2000 2001 2001 2002 2002 2003 2003 3m 1y 2y 3y 5y 7y 10y 2004 Total Bank Credit Interest Rates Sep 03 Oct 03 Nov 03 Federal Funds Rate 1.01 1.01 1.00 Prime Rate 4.00 4.00 4.00 Primary Credit Rate 2.00 2.00 2.00 Conventional Mortgage Rate 6.15 5.95 Percent change at an annual rate 50 40 30 . Treasury Yields Treasury Yields: 20 10 0 . . 5.93 . . . 3-Month Constant Maturity 0.96 0.94 0.95 6-Month Constant Maturity 1.03 1.02 1.04 1-Year Constant Maturity 1.24 1.25 1.34 3-Year Constant Maturity 2.23 2.26 2.45 5-Year Constant Maturity 3.18 3.19 3.29 10-Year Constant Maturity 4.27 4.29 4.30 -10 2000 2000 2001 2001 2002 2002 2003 2003 2004 Research Division Federal Reserve Bank of St. Louis 3 updated through 12/15/03 Monetary Trends MZM and M1 Percent change from year ago 25 20 15 10 MZM 5 0 M1 -5 -10 1986 86 1987 87 1988 88 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 M2 Percent change from year ago 15 10 5 0 -5 1986 86 1987 87 1988 88 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 M3 Percent change from year ago 15 10 5 0 -5 1986 86 1987 87 1988 88 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 Monetary Services Index - M2 Percent change from year ago 15 10 5 0 -5 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 03 2003 2004 Research Division 4 Federal Reserve Bank of St. Louis updated through 12/15/03 Monetary Trends Adjusted Monetary Base Percent change from year ago 20 15 10 5 0 -5 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 98 1998 1999 99 00 2000 2001 01 2002 02 2003 Domestic Nonfinancial Debt Currency Held by the Nonbank Public Percent change from year ago Percent change from year ago 03 2004 15 15 10 Total 10 5 0 5 Federal -5 -10 0 1996 1996 1997 1998 1999 2000 2001 2002 2003 1997 1998 1999 2000 2001 2002 2003 2004 2000 2000 2001 2001 2002 2002 2003 Time Deposits Checkable and Savings Deposits Percent change from year ago Percent change from year ago 30 2003 2004 30 25 25 Large Denomination 20 20 15 15 10 10 5 5 0 0 -5 -5 Small Denomination -10 Savings -10 -15 Checkable -15 2000 2000 2001 2001 2002 2002 2003 2003 2004 2000 Note: The surge in large time deposits for the month of July 2003, was due to accounting changes for commercial banks. For further information, please refer to www.federalreserve.gov/releases/h8/. Money Market Mutual Fund Shares 2000 2001 2001 2002 2002 Billions of dollars 60 50 Institutional Funds 30 20 Billions of dollars 400 500 350 300 Repos (left) 400 10 250 350 Retail Funds 200 Eurodollars (right) 300 -10 -20 150 250 2000 2000 2001 2001 2002 2002 2003 2003 2004 550 450 0 2003 Repurchase Agreements and Eurodollars Percent change from year ago 40 2003 100 2000 2001 2002 2003 2004 Research Division Federal Reserve Bank of St. Louis 5 updated through 12/15/03 Monetary Trends M1 Percent change at an annual rate 80 60 40 20 0 -20 -40 -60 1986 86 1987 87 1988 88 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 MZM Percent change at an annual rate 40 30 20 10 0 -10 -20 1986 86 1987 87 1988 88 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 M2 Percent change at an annual rate 40 30 20 10 0 -10 1986 86 1987 87 1988 88 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 M3 Percent change at an annual rate 40 30 20 10 0 -10 -20 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 03 2003 2004 Research Division 6 Federal Reserve Bank of St. Louis updated through 12/15/03 Monetary Trends Adjusted and Required Reserves Billions of dollars 120 100 Adjusted 80 60 Required 40 20 0 1986 86 1987 87 1988 88 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 Total Borrowings, nsa Excess Reserves plus RCB Contracts Billions of dollars Billions of dollars 3.5 28 3.0 24 2.5 03 2004 20 2.0 16 1.5 12 1.0 8 0.5 0.0 4 1996 1996 1997 1998 1999 2000 2001 2002 2003 1997 1998 1999 2000 2001 2002 2003 2004 1996 1997 1998 1999 2000 2001 2002 2003 1996 1997 1998 1999 2000 2001 2002 2003 2004 Nonfinancial Commercial Paper Percent change from year ago 60 40 20 0 -20 -40 1986 86 1987 87 1988 88 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 Consumer Credit Percent change from year ago 20 15 10 5 0 -5 -10 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 03 2003 2004 Research Division Federal Reserve Bank of St. Louis 7 updated through 12/16/03 Monetary Trends 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 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 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 T-Bill 4 2 0 10-Year less 3-Year T-Bill 3-Year less 3-Month T-Bill -2 1986 86 1987 87 1988 88 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 Real Interest Rates Percent, Real rate = Nominal rate less CPI inflation 8 6 1-Year Treasury Yield 4 2 Federal Funds Rate 0 -2 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 03 2003 2004 Research Division 8 Federal Reserve Bank of St. Louis updated through 12/04/03 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 1986 86 1987 87 1988 88 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 02 2002 2003 03 2004 Long-Term Interest Rates Percent 13 Conventional Mortgage 11 9 7 Corporate Aaa 5 10-Year Treasury Yield 3 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 Long-Term Interest Rates Short-Term Interest Rates Percent Percent 9 2001 01 02 2002 2003 03 2004 9 8 8 90-Day Commercial Paper 7 Corporate Baa 7 6 5 6 3-Month Treasury Yield 4 5 3 10-Year Treasury Yield 2 4 1 3 0 2000 2000 2001 2001 2002 2002 2003 2003 2004 2000 2000 2001 2001 2002 2002 2003 2003 2004 FOMC Intended Federal Funds Rate, Discount Rate, and Primary Credit Rate Percent 12 10 Intended Federal Funds Rate 8 6 Discount Rate Primary Credit Rate 4 2 0 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 03 2003 2004 Research Division Federal Reserve Bank of St. Louis 9 updated through 11/25/03 Monetary Trends Federal Funds Rate and Inflation Targets Percent 12 4% 3% 2% 1% 0% Target Inflation Rates 9 Actual 6 3 0 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 Calculated federal funds rate is based on Taylor’s rule. See notes on page 19. 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Components of Taylor’s Rule Actual and Potential Real GDP PCE Inflation and Projections Percent change from year ago Billions of chain-weighted 1996 dollars 10000 6 9500 5 Actual 9000 4 8500 3 Potential 8000 2 7500 1 7000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 The shaded region shows the range of projections published in the Monetary Policy Report to the Congress. Monetary Base Growth* and Inflation Targets Percent 12 Actual 9 6 3 Target Inflation Rates 0% 1% 2% 3% 4% 0 1994 94 95 1995 1996 96 97 1997 98 1998 99 1999 00 2000 2001 01 2002 02 2003 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. 04 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 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 1994 04 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 04 Research Division 10 Federal Reserve Bank of St. Louis updated through 12/15/03 Monetary Trends Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent, daily data Percent 8 6 1.4 Week Ending: 12/13/02 11/14/03 12/12/03 Feb 2004 1.3 Jan 2004 4 || || 1.2 2 Dec 2003 0 2y 3y 5y 7y 10y 1.1 10/13 Rates on Selected Federal Funds Futures Contracts 10/20 10/27 11/03 11/10 11/17 11/24 12/01 12/08 12/15 Rates on Federal Funds Futures on Selected Dates Percent, daily data Percent 1.1 1.2 Jan 2004 | || || || | Feb 2004 11/14/2003 1.1 10/17/2003 1 Dec 2003 12/12/2003 1.0 0.9 0.9 10/13 10/20 10/27 11/03 11/10 11/17 11/24 12/01 12/08 12/15 Dec Jan Feb Apr Mar May Contract Month Inflation-Indexed Treasury Bonds Inflation-Indexed Treasury Yield Spreads Percent, weekly data Percent, weekly data 4 5 4.5 3 4 30-Year 3.5 2 30-Year 3 10-Year 2.5 10-Year 1 2 0 1.5 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Inflation-Indexed 30-Year Government Bonds Inflation-Indexed 10-Year Government Bonds Percent, weekly data Percent, weekly data 5 5 U.S. U.S. 4 France Canada || | 3 2 4 France 3 2 U.K. 1 1999 2000 2001 2002 2003 01/01/1999 01/01/2000 01/01/2001 01/01/2002 01/01/2003 01/01/2004 U.K. 1 1999 2000 2001 2002 2003 01/01/1999 01/01/2000 01/01/2001 01/01/2002 01/01/2003 01/01/2004 Research Division Federal Reserve Bank of St. Louis 11 updated through 11/25/03 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 9497 86 9862 87 10227 88 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 Interest Rates Percent 10 8 3-Month T-Bill 6 4 M2 Own MZM Own 2 0 86 9862 87 10227 88 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 MZM Velocity and Interest Rate Spread M2 Velocity and Interest Rate Spread Ratio Scale Ratio Scale 3.50 03 16071 2.25 Velocity = Nominal GDP / M2 Velocity = Nominal GDP / MZM 9497 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 11 Interest Rate Spread = 3-Month T-Bill less MZM Own Rate 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 11/25/03 Monetary Trends Gross Domestic Product Percent change from year ago 20 15 10 5 0 1986 86 1987 87 1988 88 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 Dashed lines indicate 10-year moving averages. Real Gross Domestic Product Percent change from year ago 15 10 5 0 -5 1986 86 1987 87 1988 88 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 Dashed lines indicate 10-year moving averages. Gross Domestic Product Price Index Percent change from year ago 20 15 10 5 0 1986 86 1987 87 1988 88 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 Dashed lines indicate 10-year moving averages. M2 Percent change from year ago 20 15 10 5 0 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 03 2003 2004 Dashed lines indicate 10-year moving averages. Research Division Federal Reserve Bank of St. Louis 13 updated through 12/15/03 Monetary Trends Bank Credit Percent change from year ago 20 15 10 5 0 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Investment Securities in Bank Credit at Commercial Banks Percent change from year ago 25 20 15 10 5 0 -5 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Total Loans and Leases in Bank Credit at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Commercial and Industrial Loans at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 -10 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Research Division 14 Federal Reserve Bank of St. Louis updated through 12/16/03 Monetary Trends 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) 6 200 0 0 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 Recent Inflation and Long-Term Interest Rates Consumer Price Inflation Rates Long-Term Government Bond Rates Percent change from year ago 2002Q4 2003Q1 2003Q2 2003Q3 Percent Aug03 Sep03 Oct03 Nov03 United States 2.25 2.87 2.17 2.22 4.45 4.27 4.29 4.30 Canada 3.79 4.47 2.81 2.11 4.96 4.64 4.85 4.79 France 2.14 2.37 1.92 1.95 4.32 4.17 4.46 . Germany 1.20 1.17 0.87 1.00 4.13 4.17 4.22 4.35 Italy 2.77 2.72 2.70 2.75 4.31 4.40 4.38 4.51 -0.40 -0.23 -0.24 -0.23 1.14 1.45 1.40 1.39 2.56 3.07 3.01 2.93 4.58 4.68 4.89 . Japan United Kingdom Inflation and Long-Term Interest Rate Differentials Percent Percent 3 3 Canada U.K. Canada 0 0 U.K. Japan Germany Germany -3 -3 Inflation differential = Foreign inflation less U.S. inflation Long-term rate differential = Foreign rate less U.S. rate -6 Japan -6 14610 2000 14976 2001 15341 2002 15706 2003 16071 14610 2000 14976 2001 15341 2002 15706 2003 16071 Research Division Federal Reserve Bank of St. Louis 15 updated through 12/15/03 Monetary Trends Money Stock Bank Adjusted M1 MZM M2 M3 Credit Monetary Base Reserves MSI M2 1998. 1079.870 3709.650 4207.806 5749.858 4324.464 525.184 84.060 241.555 1999. 1101.501 4170.281 4525.990 6252.637 4577.140 574.181 88.664 257.907 2000. 1103.476 4508.669 4801.910 6842.016 5025.755 607.106 84.511 272.545 2001. 1136.615 5220.753 5222.602 7622.646 5343.693 641.167 85.931 296.280 2002. 1190.234 5888.755 5619.990 8232.295 5595.293 697.071 87.927 319.397 2001 1 1100.144 4856.861 5033.492 7277.265 5270.437 619.676 82.207 285.353 . 2 1116.133 5108.948 5160.865 7544.598 5311.772 629.484 82.722 292.843 . 3 1162.812 5329.059 5292.309 7727.597 5361.292 651.930 90.905 300.532 . 4 1167.372 5588.141 5403.744 7941.125 5431.272 663.578 87.887 306.393 2002 1 1183.773 5726.069 5494.908 8056.785 5415.127 680.264 88.156 311.600 . 2 1181.579 5812.218 5546.655 8139.404 5482.968 692.937 86.979 315.250 . 3 1190.495 5947.501 5669.317 8285.396 5655.931 702.753 86.821 322.283 . 4 1205.088 6069.232 5769.077 8447.594 5827.147 712.330 89.753 328.454 2003 1 1227.664 6162.302 5861.289 8566.065 5942.898 726.821 90.845 334.408 . 2 1255.536 6262.783 5985.400 8703.166 6122.209 738.225 91.745 341.958 . 3 1283.866 6468.293 6121.830 8942.333 6198.366 744.023 94.577 350.032 2001 Nov 1165.330 5587.325 5403.262 7945.526 5445.892 661.381 86.229 306.419 . Dec 1172.884 5663.621 5445.098 8006.248 5434.144 665.556 85.880 308.503 2002 Jan 1179.046 5684.649 5469.090 8017.885 5413.905 673.713 87.295 310.020 . Feb 1185.197 5739.210 5507.373 8069.641 5420.206 681.914 89.237 312.230 . Mar 1187.076 5754.347 5508.262 8082.829 5411.269 685.165 87.937 312.549 . Apr 1172.596 5752.540 5494.843 8084.978 5435.585 689.008 88.352 312.466 . May 1183.264 5820.652 5557.466 8152.352 5484.357 692.736 86.586 315.724 . Jun 1188.878 5863.461 5587.657 8180.881 5528.962 697.068 85.999 317.561 . Jul 1195.740 5911.203 5635.502 8227.125 5581.357 701.032 86.101 320.059 . Aug 1184.469 5953.277 5673.379 8293.720 5663.471 702.878 86.383 322.468 . Sep 1191.275 5978.022 5699.071 8335.343 5722.966 704.350 87.978 324.323 . Oct 1202.643 5980.604 5737.043 8346.900 5755.579 710.665 89.827 326.569 . Nov 1202.199 6090.541 5777.281 8470.033 5835.879 712.473 89.839 328.881 . Dec 1210.421 6136.550 5792.907 8525.849 5889.982 713.851 89.594 329.911 2003 Jan 1212.846 6134.495 5821.768 8525.995 5881.696 719.527 89.443 332.009 . Feb 1233.432 6174.092 5875.013 8572.852 5957.697 728.658 91.817 335.174 . Mar 1236.715 6178.318 5887.086 8599.348 5989.300 732.279 91.275 336.042 . Apr 1236.918 6185.216 5910.047 8617.594 6028.644 736.486 92.278 337.857 . May 1257.822 6262.954 5998.654 8711.700 6141.283 738.662 91.418 342.530 . Jun 1271.867 6340.179 6047.498 8780.203 6196.699 739.526 91.540 345.487 . Jul 1277.822 6444.853 6099.520 8916.866 6200.633 741.236 93.471 348.716 . Aug 1285.738 6481.965 6143.605 8956.490 6192.450 745.282 95.410 351.214 . Sep 1288.039 6478.061 6122.364 8953.644 6202.015 745.552 94.850 350.167 . Oct 1286.949 6423.972 6091.902 8896.071 6184.078 753.729 95.166 349.399 . Nov 1281.911 6386.221 6070.557 8861.260 6223.288 754.694 94.649 348.772 *All values are given in billions of dollars. Research Division 16 Federal Reserve Bank of St. Louis updated through 12/15/03 Monetary Trends Federal Discount Primary Prime 3-mo Funds Rate Credit Rate Rate CDs Treasury Yields 3-mo 3-yr Corporate 10-yr Aaa Bonds S&L Aaa Bonds Conventional Mortgage 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 5.01 6.97 2002. 1.67 1.17 . 4.68 1.73 1.63 3.10 4.61 6.49 4.87 6.54 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 4.95 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 . 4 1.44 0.94 . 4.45 1.49 1.36 2.27 4.01 6.28 4.71 6.08 2003 1 1.25 . 2.25 4.25 1.26 1.18 2.07 3.92 6.00 4.60 5.83 . 2 1.25 . 2.23 4.24 1.17 1.06 1.77 3.62 5.31 4.28 5.51 . 3 1.02 . 2.00 4.00 1.07 0.95 2.20 4.23 5.70 4.68 6.01 2001 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 6.11 . Oct 1.75 1.25 . 4.75 1.73 1.61 2.25 3.94 6.32 4.66 . Nov 1.34 0.83 . 4.35 1.39 1.25 2.32 4.05 6.31 4.77 6.07 . Dec 1.24 0.75 . 4.25 1.34 1.21 2.23 4.03 6.21 4.70 6.05 2003 Jan 1.24 . . 4.25 1.29 1.19 2.18 4.05 6.17 4.72 5.92 . Feb 1.26 . 2.25 4.25 1.27 1.19 2.05 3.90 5.95 4.57 5.84 . Mar 1.25 . 2.25 4.25 1.23 1.15 1.98 3.81 5.89 4.51 5.75 . Apr 1.26 . 2.25 4.25 1.24 1.15 2.06 3.96 5.74 4.60 5.81 . May 1.26 . 2.25 4.25 1.22 1.09 1.75 3.57 5.22 4.16 5.48 . Jun 1.22 . 2.20 4.22 1.04 0.94 1.51 3.33 4.97 4.07 5.23 . Jul 1.01 . 2.00 4.00 1.05 0.92 1.93 3.98 5.49 4.59 5.63 . Aug 1.03 . 2.00 4.00 1.08 0.97 2.44 4.45 5.88 4.82 6.26 . Sep 1.01 . 2.00 4.00 1.08 0.96 2.23 4.27 5.72 4.63 6.15 . Oct 1.01 . 2.00 4.00 1.10 0.94 2.26 4.29 5.70 4.64 5.95 . Nov 1.00 . 2.00 4.00 1.11 0.95 2.45 4.30 5.65 4.50 5.93 *All values are given as a percent at an annual rate. Research Division Federal Reserve Bank of St. Louis 17 updated through 12/15/03 Monetary Trends M1 MZM M2 M3 Percent change at an annual rate 1998. 0.99 11.66 7.29 10.35 1999. 2.00 12.42 7.56 8.74 2000. 0.18 8.11 6.10 9.43 2001. 3.00 15.79 8.76 11.41 2002. 4.72 12.80 7.61 8.00 2001 1 2.71 18.62 10.64 13.24 . 2 5.81 20.76 10.12 14.69 . 3 16.73 17.23 10.19 9.70 . 4 1.57 19.45 8.42 11.05 2002 1 5.62 9.87 6.75 5.83 . 2 -0.74 6.02 3.77 4.10 . 3 3.02 9.31 8.85 7.17 . 4 4.90 8.19 7.04 7.83 2003 1 7.49 6.13 6.39 5.61 . 2 9.08 6.52 8.47 6.40 . 3 9.03 13.13 9.12 10.99 2001 Nov 1.47 16.07 9.04 11.27 . Dec 7.78 16.39 9.29 9.17 2002 Jan 6.30 4.46 5.29 1.74 . Feb 6.26 11.52 8.40 7.75 . Mar 1.90 3.16 0.19 1.96 . Apr -14.64 -0.38 -2.92 0.32 . May 10.92 14.21 13.68 10.00 . Jun 5.69 8.83 6.52 4.20 . Jul 6.93 9.77 10.28 6.78 . Aug -11.31 8.54 8.07 9.71 . Sep 6.90 4.99 5.43 6.02 . Oct 11.45 0.52 8.00 1.66 . Nov -0.44 22.06 8.42 17.70 . Dec 8.21 9.07 3.25 7.91 0.02 2003 Jan 2.40 -0.40 5.98 . Feb 20.37 7.75 10.98 6.59 . Mar 3.19 0.82 2.47 3.71 . Apr 0.20 1.34 4.68 2.55 . May 20.28 15.08 17.99 13.10 . Jun 13.40 14.80 9.77 9.44 . Jul 5.62 19.81 10.32 18.68 . Aug 7.43 6.91 8.67 5.33 . Sep 2.15 -0.72 -4.15 -0.38 . Oct -1.02 -10.02 -5.97 -7.72 . Nov -4.70 -7.05 -4.20 -4.70 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 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 shows constant maturity yields calculated by the U.S. Treasury 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/fred2/. See Research Division Federal Reserve Bank of St. Louis also Federal Reserve Bulletin, table 1.35. The 30-year 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 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) × 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. 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, 19 Monetary Trends 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)], e –R(m) × m)/R(m). where duration is approximated as D(m) = (1 – 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 Bonds are yields on the most recently issued inflation-indexed securities of 10- and 30year original maturities. Inflation-Indexed Treasury Yield Spreads equal, for 10- and 30-year maturities, the difference between the yields on the most recently issued inflation-indexed securities and the unadjusted bond yields of similar maturity. Inflation-Indexed 30-Year Government Bonds shows the yield of an inflation-indexed bond that is scheduled to mature in approximately (but not greater than) 30 years. The current Canadian bond has a maturity date of 12/01/2031, the current French bond has a maturity date of 7/25/2032, 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 Government Bonds shows the yield of an inflation-indexed bond that is scheduled to mature in approximately (but not greater than) 10 years. The current French bond has a maturity date of 7/25/2013, the current U.K. bond has a maturity date of 8/16/2013, and the current U.S. bond has a maturity date of 7/15/2013. 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 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. Page 14: Investment Securities are all securities held by commercial banks in both investment and trading accounts. 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 inflation-indexed bond yields. Bank of Canada: Canadian inflation-indexed bond yields. Bank of England : U.K. inflation-indexed bond 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. Bureau of Economic Analysis : GDP. 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. inflation-indexed 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. ____(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,” CarnegieRochester Conference Series on Public Policy, vol. 39, pp. 195-214. Note: *Available on the Internet at research.stlouisfed.org/publications/review/. Bureau of Labor Statistics : CPI. Chicago Board of Trade: Federal funds futures contract. Chicago Mercantile Exchange : Eurodollar futures. Congressional Budget Office : Potential real GDP. Federal Reserve Bank of Philadelphia : Survey of Professional Forecasters inflation expectations. 20 Research Division Federal Reserve Bank of St. Louis
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