Full text of Monetary Trends : July 2003
The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
MonetaryTrends July 2003 Predictability and Effectiveness of Monetary Policy T ransparency in the conduct of monetary policy is generally considered to be a good thing. Many economists believe that the better market participants are able to predict monetary policy actions— specifically, changes in the target for the federal funds rate—the more effective monetary policy will be in influencing long-term interest rates. There are two problems with this argument. The first stems from the expectations hypothesis (EH) itself, which asserts that the long-term rate is determined by the market’s expectation of the short-term rate over the holding period of the long-term asset (plus a risk premium). The EH implies market participants are able to predict the future level of the short-term rate, which necessarily implies that they can predict changes in the short-term rate. It is not the ability to predict near-term policy actions, per se, that determines the magnitude of the response of long-term rates to policy actions, however. Rather, it is the ability to predict the longer-term course of policy that is important. The following simple example illustrates why this is true: Assume that the market fully and correctly anticipates that the Fed will lower the funds rate target by 50 basis points next week and raise it 50 basis points the following week. Despite the fact that these actions are perfectly predictable in this example, their effect on longer-term rates would be small. Indeed, the longer an asset’s term, the smaller will be the effect. If the future course of policy could be known with certainty, the predictability of policy actions would affect only the timing of the market response to policy actions, not the size of the response of long-term rates. To see why, consider two scenarios where the Fed permanently reduces the funds rate target by 50 basis points. In the first scenario, the market anticipates the Fed’s action, so that long-term rates fall by 50 basis points in advance of the Fed’s action. In the second, the market does not anticipate the policy action; long-term rates fall by 50 basis points but only after the Fed reveals that it has reduced the funds rate target. In both cases the effect on long-term rates is the same. The only difference is the timing of the decline in long-term interest rates—either before the action or when the action is announced. In which case is monetary policy more effective? This is not an easy question to answer in general; however, policy is not obviously more effective in the case where the market is able to predict the timing of policy actions. Predicting the timing of policy actions is not the critical factor: The effect of policy actions on long-term rates is determined by the market’s ability to predict how long this new policy will persist. A second problem with the argument that predictability of policy actions increases the effectiveness of policy is that it depends on how monetary policymakers set their policy instrument. Some policymakers claim to set their instrument at the level consistent with achieving their policy objectives, given all the information they have at the time, including their forecasts for the economy. The instrument setting is changed only when policymakers receive new information that suggests that their policy objectives cannot be obtained with the instrument’s current setting. If policy is made in this way, market participants need two pieces of information to predict the timing of policy actions. First, they must anticipate the new information that policymakers will receive. Hence, predicting policy actions requires that market participants predict future events better than policymakers can. This would seem to be a rather severe requirement. Market participants also must be able to predict how policymakers will respond to the new information. This is extremely difficult, if for no other reason than the fact that information tends to come in packets, not pieces. Each day policymakers receive news about a number of economic variables. How they respond to any one piece of information depends, in part, on the other pieces of information in that packet and, perhaps, on information received in the packets of previous days. —Daniel L. Thornton 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. Except where otherwise noted, solid shading indicates recessions, as determined by the National Bureau of Economic Research. The NBER has not yet determined the end of the recession that began in March 2001; however, the hatched shading indicates this recession ended in November 2001, as determined by a statistical model for dating business cycle turning points developed by Marcelle Chauvet (“An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, November 1998, pp. 969-96) and discussed by Marcelle Chauvet and Jeremy Piger (“Identifying Business Cycle Turning Points in Real Time,” Federal Reserve Bank of St. Louis Review, March/April 2003, pp. 47-62). 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: 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 06/16/03 Monetary Trends Reserve Market Rates M2 and MZM Billions of dollars Percent 6400 7.00 Effective Federal Funds Rate Intended Federal Funds Rate 6.50 6150 6.00 5900 5.50 5.00 5650 M2 4.50 5400 4.00 5150 3.50 3.00 4900 Primary Credit Rate 2.50 Discount Rate 2.00 4650 MZM 1.50 4400 1.00 4150 0.50 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 60 6.0 50 5.5 5.0 40 Week Ending: 06/14/02 05/16/03 06/13/03 4.5 30 4.0 20 3.5 10 3.0 2.5 0 2.0 -10 1.5 -20 1.0 -30 0.5 2000 2000 2001 2001 2002 2002 2003 2003 3m 1y 2y 3y 5y 7y 10y 2004 Total Bank Credit Interest Rates Mar 03 Apr 03 Federal Funds Rate 1.25 1.26 1.26 Prime Rate 4.25 4.25 4.25 Primary Credit Rate 2.25 2.25 2.25 Conventional Mortgage Rate 5.75 5.81 Percent change at an annual rate 50 40 30 . Treasury Yields Treasury Yields: 20 10 0 . . May 03 5.48 . . . 3-Month Constant Maturity 1.15 1.15 1.09 6-Month Constant Maturity 1.16 1.17 1.11 1-Year Constant Maturity 1.24 1.27 1.18 3-Year Constant Maturity 1.98 2.06 1.75 5-Year Constant Maturity 2.78 2.93 2.52 10-Year Constant Maturity 3.81 3.96 3.57 -10 2000 2000 2001 2001 2002 2002 2003 2003 2004 Research Division Federal Reserve Bank of St. Louis 3 updated through 06/16/03 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 06/16/03 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 Money Market Mutual Fund Shares 2000 2000 2001 2001 2002 2002 2003 2004 Repurchase Agreements and Eurodollars Percent change from year ago Billions of dollars 60 50 Institutional Funds 40 2003 Billions of dollars 550 400 500 350 450 300 30 Repos (left) 400 250 20 350 10 Retail Funds 200 Eurodollars (right) 300 0 -10 150 250 2000 2000 2001 2001 2002 2002 2003 2003 100 2000 2001 2002 2003 2004 Research Division Federal Reserve Bank of St. Louis 5 updated through 06/16/03 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 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 06/16/03 Monetary Trends Adjusted and Required Reserves Billions of dollars 100 80 Adjusted 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 06/17/03 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 06/03/03 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 06/16/03 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 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 06/16/03 Monetary Trends Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent, daily data Percent 8 6 1.4 Week Ending: 06/14/02 05/16/03 06/13/03 Jul 2003 1.3 || || || Jun 2003 1.2 4 1.1 2 Aug 2003 1.0 0 2y 3y 5y 7y 10y 0.9 04/14 Rates on Selected Federal Funds Futures Contracts 04/21 04/28 05/05 05/12 05/19 05/26 06/02 06/09 06/16 Rates on Federal Funds Futures on Selected Dates Percent, daily data Percent 1.3 1.3 Jun 2003 1.2 1.2 Jul 2003 04/11/2003 1.1 1.1 1.0 05/16/2003 1.0 0.9 Aug 2003 0.9 0.8 0.8 06/13/2003 0.7 04/14 04/21 04/28 05/05 05/12 05/19 05/26 06/02 06/09 06/16 Jun Jul Aug Sep Oct Nov Contract Month Inflation-Indexed Treasury Bonds Inflation-Indexed Treasury Yield Spreads Percent, weekly data Percent, weekly data 4 5.0 4.5 3 4.0 30-Year 3.5 2 30-Year 3.0 10-Year 2.5 10-Year 1 2.0 1.5 0 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 6 6 5 5 U.S. U.S. Canada 4 4 3 3 2 2 U.K. 1 1999 14245 2000 14610 2001 14976 1 2002 15341 U.K. 2003 15706 1999 16071 14245 2000 14610 2001 14976 2002 15341 2003 15706 16071 Research Division Federal Reserve Bank of St. Louis 11 updated through 06/16/03 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 6 3-Month T-Bill 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 06/16/03 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 06/16/03 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 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 06/16/03 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) 200 6 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 2002Q2 2002Q3 2002Q4 2003Q1 Percent Feb03 Mar03 Apr03 May03 United States 1.24 1.58 2.25 2.87 3.90 3.81 3.96 3.57 Canada 1.33 2.33 3.79 4.47 4.93 5.13 4.90 4.50 France 1.63 1.75 2.14 2.38 4.33 4.55 4.49 . Germany 1.20 1.14 1.20 1.17 3.95 4.00 4.15 3.82 Italy 2.27 2.41 2.77 2.72 4.16 4.18 4.31 . -0.90 -0.87 -0.40 -0.23 0.72 0.64 0.59 0.50 1.23 1.53 2.56 3.07 4.25 4.33 4.47 . 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 06/16/03 Monetary Trends Money Stock Bank Adjusted M1 MZM M2 M3 Credit Monetary Base Reserves MSI M2 1998. 1079.870 3709.460 4207.773 5749.669 4333.248 508.942 67.733 241.552 1999. 1101.495 4170.041 4525.775 6252.402 4587.556 557.865 72.085 257.900 2000. 1103.401 4507.616 4801.194 6841.028 5037.235 590.821 68.219 272.523 2001. 1136.611 5218.970 5221.875 7620.986 5355.780 623.786 68.547 296.257 2002. 1190.847 5886.690 5619.974 8228.836 5601.691 678.864 69.696 319.404 2001 1 1100.135 4855.412 5032.809 7275.901 5282.584 604.847 66.211 285.330 . 2 1116.115 5107.226 5160.071 7542.994 5323.924 610.937 64.799 292.817 . 3 1162.814 5327.136 5291.533 7725.814 5373.430 633.768 73.050 300.507 . 4 1167.377 5586.105 5403.087 7939.235 5443.181 645.591 70.129 306.373 2002 1 1184.001 5724.252 5494.745 8055.291 5421.276 663.330 69.963 311.597 . 2 1182.289 5810.577 5546.983 8135.540 5490.827 674.123 68.821 315.273 . 3 1191.288 5945.472 5669.515 8282.584 5663.883 684.782 69.004 322.303 . 4 1205.809 6066.458 5768.654 8441.928 5830.777 693.222 70.997 328.443 2003 1 1228.487 6161.437 5862.781 8549.966 5947.253 709.675 72.173 334.407 2001 May 1116.660 5100.917 5153.569 7540.286 5326.230 613.257 66.712 292.570 Jun 1125.834 5193.835 5198.157 7627.837 5328.540 613.757 64.744 295.000 . Jul 1138.001 5247.612 5232.558 7666.166 5333.730 619.437 66.152 297.030 . Aug 1149.222 5281.126 5265.733 7676.583 5355.717 627.452 65.870 299.260 . Sep 1201.220 5452.671 5376.309 7834.693 5430.844 654.416 87.128 305.230 . . Oct 1163.909 5511.502 5362.212 7869.722 5426.103 644.247 72.545 304.240 . Nov 1165.335 5585.291 5402.608 7943.632 5458.293 644.414 68.875 306.400 . Dec 1172.887 5661.523 5444.441 8004.351 5445.147 648.113 68.968 308.480 2002 Jan 1179.038 5682.552 5468.550 8016.074 5418.916 655.865 70.181 310.000 . Feb 1185.241 5737.216 5507.042 8067.957 5426.384 667.212 70.933 312.220 . Mar 1187.723 5752.988 5508.642 8081.843 5418.528 666.914 68.774 312.570 . Apr 1173.259 5751.100 5495.272 8083.512 5442.539 667.693 68.186 312.490 . May 1183.978 5819.026 5557.797 8144.517 5492.631 676.063 70.143 315.750 . Jun 1189.630 5861.606 5587.880 8178.592 5537.310 678.612 68.134 317.580 . Jul 1196.528 5909.241 5635.710 8225.118 5590.026 682.347 68.443 320.080 . Aug 1185.273 5951.275 5673.597 8290.939 5672.347 684.566 68.511 322.490 . Sep 1192.062 5975.901 5699.238 8331.694 5729.275 687.433 70.059 324.340 . Oct 1203.423 5978.262 5737.062 8342.288 5759.430 690.455 70.309 326.580 . Nov 1202.943 6087.805 5776.906 8464.423 5837.995 693.678 70.963 328.870 . Dec 1211.060 6133.307 5791.995 8519.073 5894.905 695.533 71.720 329.880 2003 Jan 1213.559 6131.844 5821.433 8515.742 5887.752 701.451 72.242 331.970 . Feb 1233.845 6172.833 5876.072 8556.412 5961.938 713.738 73.137 335.140 . Mar 1238.058 6179.635 5890.837 8577.744 5992.070 713.836 71.139 336.110 . Apr 1238.520 6186.464 5913.944 8590.559 6024.291 714.713 70.862 337.950 . May 1259.326 6261.315 6000.140 8683.309 6111.884 721.412 73.548 342.580 *All values are given in billions of dollars. Research Division 16 Federal Reserve Bank of St. Louis updated through 06/16/03 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 4.99 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 4.87 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 . 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 2001 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 6.62 . Oct 2.49 2.02 . 5.53 2.31 2.20 3.14 4.57 7.03 4.89 . 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 6.99 . Apr 1.75 1.25 . 4.75 1.87 1.75 4.01 5.21 6.76 5.09 . 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 . 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 *All values are given as a percent at an annual rate. Research Division Federal Reserve Bank of St. Louis 17 updated through 06/16/03 Monetary Trends M1 MZM M2 M3 Percent change at an annual rate 1998. 0.99 11.67 7.29 10.36 1999. 2.00 12.42 7.56 8.74 2000. 0.17 8.10 6.09 9.41 2001. 3.01 15.78 8.76 11.40 2002. 4.77 12.79 7.62 7.98 2001 1 2.71 18.61 10.65 13.24 . 2 5.81 20.75 10.11 14.68 . 3 16.74 17.22 10.19 9.69 . 4 1.57 19.45 8.43 11.05 2002 1 5.70 9.89 6.79 5.85 . 2 -0.58 6.03 3.80 3.98 . 3 3.04 9.29 8.84 7.23 . 4 4.88 8.14 6.99 7.70 2003 1 7.52 6.26 6.53 5.12 2001 May 11.73 17.66 5.87 12.78 Jun 9.86 21.86 10.38 13.93 . Jul 12.97 12.42 7.94 6.03 . Aug 11.83 7.66 7.61 1.63 . Sep 54.30 38.98 25.20 24.72 . Oct -37.27 12.95 -3.15 5.37 . Nov 1.47 16.07 9.04 11.27 . Dec 7.78 16.38 9.29 9.17 . 2002 Jan 6.29 4.46 5.31 1.76 . Feb 6.31 11.54 8.45 7.77 . Mar 2.51 3.30 0.35 2.07 . Apr -14.61 -0.39 -2.91 0.25 . May 10.96 14.17 13.65 9.06 . Jun 5.73 8.78 6.50 5.02 . Jul 6.96 9.75 10.27 6.83 . Aug -11.29 8.54 8.07 9.60 . Sep 6.87 4.97 5.42 5.90 . Oct 11.44 0.47 7.96 1.53 . Nov -0.48 21.99 8.33 17.57 . Dec 8.10 8.97 3.13 7.75 2003 Jan 2.48 -0.29 6.10 -0.47 . Feb 20.06 8.02 11.26 5.73 . Mar 4.10 1.32 3.02 2.99 . Apr 0.45 1.33 4.71 1.79 . May 20.16 14.52 17.49 12.96 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: 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, 1996b, 2001). 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, 2001). 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. Primary Credit Rate, Research Division Federal Reserve Bank of St. Louis 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, 19 Monetary Trends 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 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 30-year 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 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 Government Bonds shows the yield of an inflationindexed 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 7/15/2012. GDP. 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. 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. 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. ____ and ____(2001). “Retail Sweep Programs and Bank Reserves, 1994-1999,” Federal Reserve Bank of St. Louis Review, January/February, pp. 51-72. 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. McCallum, Bennett T. (1988). “Robustness Properties of a Monetary Policy Rule,” Carnegie-Rochester Conference Series on Public Policy, vol. 29, pp. 173-204. Page 14: Investment Securities are all securities held by commercial banks in both investment and trading accounts. ____ , 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. ____(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. Page 17: Treasury Yields are Treasury constant maturities as reported in 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 Bank of Canada Canadian inflation-linked bond yields. 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 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/. Bureau of Economic Analysis 20 Research Division Federal Reserve Bank of St. Louis