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MonetaryTrends March 2003 Pushing on a String T he ability of monetary policy to slow an overheating economy is rarely questioned. However, the efficacy of monetary policy to revive a sagging economy has been long debated. Some economists argue that monetary policy is largely powerless to revive economic activity after a downturn, comparing easy monetary policy to “pushing on a string.” This idea has garnered renewed attention in recent years, in no small part due to weak recoveries following the past two recessions, despite aggressive monetary easing. Why might one think that the effect of a monetary policy stimulus on the real economy is smaller than that of a monetary policy tightening? One explanation posits an asymmetry in the extent to which prices adjust following a monetary policy action. In the long run, changes in the monetary policy instrument, such as the federal funds rate, are thought to affect only the price level and not real output. However, many macroeconomists believe that prices move sluggishly, allowing monetary policy to have some effect on real output in the short run. If prices move more sluggishly when decreasing than when increasing, a monetary policy tightening will be reflected more in output and less in prices than a monetary policy easing. Such an asymmetry in the speed of price adjustment would arise if firms were less likely to decrease than to increase wages, which could occur if firms enter labor contracts containing built-in wage increases. To evaluate the evidence of asymmetry in the effects of a monetary policy tightening compared with easing, I use regression techniques to explore the connection between quarterly growth in real gross domestic product and past changes in the Federal Reserve’s policy instrument, the federal funds rate.1 To separate policy tightening from policy easing, increases and decreases in the funds rate are included in the regression separately. The first row in the table gives the cumulative response of output growth in the two years following a 1-percentage-point increase in the funds rate. That is, a 1-percentage-point increase in the funds rate is estimated to reduce quarterly output growth over the following two years by about 1.2 percentage points. The second row shows that a 1percentage-point decline in the funds rate is estimated to increase quarterly output growth over the following two years by about 0.5 percentage points. Thus, the short-run response of output to increases in the funds rate is estimated to be over twice as large as the response to decreases in the funds rate. Of course, these results are by no means conclusive and may be misleading for many reasons. For example, the extent to which the funds rate precedes output growth may not be a good measure of the effects of monetary policy. This would be true if the funds rate preceded output growth only because the Federal Reserve moves the funds rate in response to other economic forces that truly drive output. However, while the results should be interpreted with caution, they are consistent with the view that a monetary policy tightening has more effect on output growth than a monetary policy easing. —Jeremy Piger 1 The regression was run over the sample period from 1963:Q2 to 2002:Q4. Other control variables in the regression included past values of output growth and inflation. Measuring the Effects of Monetary Policy Policy action Cumulative response of quarterly GDP growth (percentage points) Federal funds rate increase Federal funds rate decrease Views expressed do not necessarily reflect official positions of the Federal Reserve System. Available on the web at research.stlouisfed.org –1.21 0.53 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-Protected 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 Effective January 9, 2003, the Board of Governors of the Federal Reserve System established primary and secondary credit programs, which replace adjustment and extended credit programs. Beginning this issue, the primary credit rate is reported on pages 3 and 9. For further information, please refer to <http://www.frbdiscountwindow.org/>. 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/fred or call (314) 444-8590. The entire publication is also available on the Internet at research.stlouisfed.org/publications/mt. updated through 02/18/03 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 5650 5.00 5400 4.50 4.00 5150 3.50 M2 4900 3.00 4650 2.50 Primary Credit Rate Discount Rate 2.00 4400 MZM 1.50 4150 1.00 3900 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: 02/15/02 01/17/03 02/14/03 4.5 30 4.0 20 3.5 10 3.0 0 2.5 -10 2.0 -20 1.5 -30 1.0 2000 2000 2001 2001 2002 2002 2003 2003 3m 1y 2y 3y 5y 7y 10y 2004 Total Bank Credit Interest Rates Nov 02 Dec 02 Jan 03 Federal Funds Rate 1.34 1.24 1.24 Discount Rate 0.83 0.75 . Prime Rate 4.35 4.25 4.25 Percent change at an annual rate 50 40 Conventional Mortgage Rate 30 6.07 . Treasury Yields Treasury Yields: 20 10 0 6.05 . . 5.92 . . . 3-Month Constant Maturity 1.25 1.21 1.19 6-Month Constant Maturity 1.30 1.27 1.22 1-Year Constant Maturity 1.49 1.45 1.36 3-Year Constant Maturity 2.32 2.23 2.18 5-Year Constant Maturity 3.05 3.03 3.05 10-Year Constant Maturity 4.05 4.03 4.05 -10 2000 2000 2001 2001 2002 2002 2003 2003 2004 Research Division Federal Reserve Bank of St. Louis 3 updated through 02/18/03 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 02/14/03 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 1995 1996 1997 1998 1999 2000 2001 2002 1995 1996 1997 1998 1999 2000 2001 2002 2003 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 Savings 5 0 0 Small Denomination -5 -5 -10 -10 -15 -15 2000 2000 2001 2001 2002 2002 2003 2003 2004 Money Market Mutual Fund Shares Checkable 2000 2000 2001 2001 2002 2002 2003 Billions of dollars 55 50 45 40 35 30 25 20 15 10 5 0 -5 -10 500 Billions of dollars 400 450 350 Repos (left) Institutional Funds 400 300 350 250 300 Retail Funds 200 Eurodollars (right) 250 150 200 2000 2001 2001 2002 2002 2003 2003 2004 Repurchase Agreements and Eurodollars Percent change from year ago 2000 2003 100 2000 2001 2002 2003 2004 Research Division Federal Reserve Bank of St. Louis 5 updated through 02/14/03 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 02/14/03 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 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 Research Division Federal Reserve Bank of St. Louis 7 updated through 02/04/03 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 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 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 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 02/04/03 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 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 Long-Term Interest Rates Percent 13 Conventional Mortgage 11 9 7 Corporate Aaa 5 10-Year Treasury Yield 3 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 Long-Term Interest Rates Short-Term Interest Rates Percent Percent 9 01 2001 02 2002 03 2003 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 2001 2000 2002 2001 2003 2002 2000 2003 2004 2001 2000 2002 2001 2003 2002 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 01/30/03 Monetary Trends 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 1998 1999 1998 1999 Calculated federal funds rate is based on Taylor’s rule. See notes on page 19. 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 10000 6 9500 5 Actual 9000 4 8500 Potential 8000 3 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 *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. 03 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 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 03 Research Division 10 Federal Reserve Bank of St. Louis updated through 02/19/03 Monetary Trends Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent, daily data Percent 8 6 1.5 Week Ending: 02/15/02 01/17/03 02/14/03 Apr 2003 1.4 Feb 2003 4 | 1.3 Mar 2003 2 0 2y 3y 5y 7y 10y 1.2 12/20 Rates on Selected Fed Funds Futures Contracts 01/03 Percent, daily data Percent 1.3 01/17 01/24 01/31 02/07 02/14 02/21 12/13/2002 Feb 2003 Mar 2003 01/10 Implied Yields on Fed Funds Futures 1.3 || | 1.2 12/27 1.2 01/17/2003 Apr 2003 02/14/2003 1.1 1.1 12/20 12/27 01/03 01/10 01/17 01/24 01/31 02/07 02/14 02/21 Feb Apr Mar May Jun Jul Inflation-Protected Treasury Yields Inflation-Protected 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 Inflation-Indexed 30-Year Bonds Inflation-Indexed 10-Year Bonds Percent, weekly data Percent, weekly data 6 2003 2003 2004 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 02/18/03 Monetary Trends 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 0.0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 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 0.0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 M2, MZM, and Nominal GDP Billions of dollars 12000 10000 Nominal GDP 8000 6000 M2 4000 MZM 2000 0 1985 85 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 Interest Rates Percent 15 10 5-yr Bond 5 M2 Own 3-mo Bill 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 98 1998 99 1999 00 2000 01 2001 02 2002 2003 Research Division 12 Federal Reserve Bank of St. Louis updated through 01/30/03 Monetary Trends 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 98 1998 99 1999 00 2000 01 2001 02 2002 2003 Dashed lines indicate 10-year moving averages. Research Division Federal Reserve Bank of St. Louis 13 updated through 02/18/03 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 02/18/03 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 2002Q1 2002Q2 2002Q3 2002Q4 Percent Oct02 Nov02 Dec02 Jan03 United States 1.25 1.30 1.58 2.25 3.94 4.05 4.03 4.05 Canada 1.53 1.33 2.33 3.79 5.57 5.56 5.46 . France 2.13 1.63 1.75 2.14 5.14 4.80 4.79 . Germany 1.90 1.16 1.03 1.16 4.50 4.50 4.30 4.18 Italy 2.41 2.27 2.41 2.77 4.76 4.74 4.55 4.38 -1.40 -0.90 -0.80 -0.44 0.97 0.86 0.84 0.75 1.21 1.23 1.53 2.56 4.61 4.64 4.57 . Japan United Kingdom Inflation and Long-Term Interest Rate Differentials Percent Percent 3 3 Canada Canada U.K. 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 02/18/03 Monetary Trends Money Stock Bank Adjusted M1 MZM M2 M3 Credit Monetary Base Reserves MSI M2 1998. 1080.016 3707.676 4206.459 5747.521 4329.574 508.942 67.808 241.499 1999. 1101.888 4167.305 4523.633 6247.852 4587.385 557.865 72.360 257.790 2000. 1104.045 4504.688 4798.744 6833.892 5037.374 590.821 68.319 272.405 2001. 1137.041 5214.991 5218.119 7612.608 5355.650 623.788 68.983 296.067 2002. 1191.443 5890.385 5619.916 8220.881 5605.700 678.862 70.077 319.058 2000 1 1112.342 4378.730 4695.096 6620.521 4840.796 593.102 72.390 266.827 . 2 1107.089 4454.369 4767.891 6759.688 4994.223 586.045 67.097 270.523 . 3 1103.528 4549.478 4833.332 6919.848 5122.031 589.054 66.636 274.383 . 4 1093.220 4636.174 4898.659 7035.513 5192.447 595.084 67.151 277.887 2001 1 1100.484 4851.627 5028.958 7268.379 5278.903 604.848 66.577 285.133 . 2 1116.478 5103.197 5156.375 7536.713 5324.456 610.939 65.235 292.627 . 3 1163.269 5323.070 5287.777 7716.943 5373.855 633.771 73.522 300.320 . 4 1167.931 5582.070 5399.365 7928.396 5445.384 645.595 70.596 306.187 2002 1 1184.655 5719.433 5490.160 8042.979 5433.837 663.335 70.297 311.380 . 2 1182.774 5810.202 5545.955 8125.806 5496.790 674.121 69.186 315.070 . 3 1192.062 5953.654 5672.860 8281.745 5664.681 684.786 69.477 321.970 . 4 1206.280 6078.250 5770.688 8432.993 5827.492 693.206 71.347 327.813 2001 Jan 1093.298 4753.157 4981.182 7196.095 5272.141 600.886 68.095 282.300 . Feb 1100.190 4859.076 5026.436 7270.863 5273.992 607.234 66.556 285.080 . Mar 1107.965 4942.648 5079.257 7338.179 5290.577 606.425 65.080 288.020 . Apr 1106.282 5023.156 5125.029 7454.869 5315.546 605.800 63.239 290.700 . May 1117.017 5096.859 5149.815 7533.990 5327.854 613.259 67.119 292.380 . Jun 1126.135 5189.575 5194.282 7621.280 5329.969 613.759 65.346 294.800 . Jul 1138.346 5243.358 5228.639 7658.681 5335.903 619.440 66.654 296.830 . Aug 1149.702 5277.079 5262.000 7667.624 5356.567 627.455 66.379 299.080 . Sep 1201.758 5448.773 5372.691 7824.525 5429.096 654.419 87.534 305.050 . Oct 1164.475 5507.546 5358.520 7858.911 5424.655 644.250 72.956 304.050 . Nov 1165.870 5581.293 5398.998 7932.763 5460.473 644.417 69.378 306.220 . Dec 1173.448 5657.371 5440.578 7993.514 5451.023 648.117 69.455 308.290 2002 Jan 1179.706 5678.108 5464.352 8004.673 5428.743 655.869 70.666 309.800 . Feb 1186.123 5732.628 5502.677 8055.943 5438.902 667.217 71.245 312.010 . Mar 1188.136 5747.564 5503.450 8068.322 5433.867 666.918 68.980 312.330 . Apr 1173.682 5747.338 5491.487 8071.093 5450.794 667.691 68.480 312.260 . May 1184.393 5818.623 5557.324 8135.011 5498.926 676.061 70.546 315.590 . Jun 1190.246 5864.645 5589.053 8171.315 5540.651 678.610 68.531 317.360 . Jul 1197.366 5915.073 5637.962 8220.907 5591.187 682.348 68.943 319.790 . Aug 1186.303 5959.666 5677.120 8290.861 5672.805 684.570 69.021 322.170 . Sep 1192.517 5986.224 5703.497 8333.467 5730.051 687.439 70.468 323.950 . Oct 1203.938 5990.625 5741.681 8337.964 5759.489 690.454 70.715 326.150 . Nov 1203.433 6099.380 5778.651 8455.287 5837.180 693.675 71.260 328.220 . Dec 1211.468 6144.744 5791.733 8505.728 5885.808 695.490 72.066 329.070 2003 Jan 1213.417 6143.102 5820.167 8503.119 5892.315 701.416 72.497 331.060 *All values are given in billions of dollars. Research Division 16 Federal Reserve Bank of St. Louis updated through 02/18/03 Monetary Trends 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 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 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 . 4 1.44 0.94 4.45 1.49 1.36 2.27 4.01 6.28 4.71 6.08 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 . 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 *All values are given as a percent at an annual rate. Research Division Federal Reserve Bank of St. Louis 17 updated through 02/18/03 Monetary Trends M1 MZM M2 M3 Percent change at an annual rate 1998. 1.00 11.67 7.30 10.35 1999. 2.03 12.40 7.54 8.71 2000. 0.20 8.10 6.08 9.38 2001. 2.99 15.77 8.74 11.39 2002. 4.78 12.95 7.70 7.99 2000 1 0.03 8.16 6.48 11.11 . 2 -1.89 6.91 6.20 8.41 . 3 -1.29 8.54 5.49 9.48 . 4 -3.74 7.62 5.41 6.69 2001 1 2.66 18.59 10.64 13.24 . 2 5.81 20.74 10.13 14.77 . 3 16.76 17.23 10.19 9.57 . 4 1.60 19.46 8.44 10.96 2002 1 5.73 9.84 6.73 5.78 . 2 -0.64 6.35 4.07 4.12 . 3 3.14 9.88 9.15 7.68 . 4 4.77 8.37 6.90 7.31 2001 Jan 9.26 20.87 13.22 17.87 . Feb 7.56 26.74 10.90 12.47 . Mar 8.48 20.64 12.61 11.11 19.08 . Apr -1.82 19.55 10.81 . May 11.64 17.61 5.80 12.74 . Jun 9.80 21.83 10.36 13.90 . Jul 13.01 12.44 7.94 5.89 . Aug 11.97 7.72 7.66 1.40 . Sep 54.33 39.04 25.24 24.56 . Oct -37.23 12.94 -3.17 5.27 . Nov 1.44 16.07 9.06 11.28 . Dec 7.80 16.36 9.24 9.19 2002 Jan 6.40 4.40 5.24 1.68 . Feb 6.53 11.52 8.42 7.69 . Mar 2.04 3.13 0.17 1.84 . Apr -14.60 -0.05 -2.61 0.41 . May 10.95 14.88 14.39 9.50 . Jun 5.93 9.49 6.85 5.36 . Jul 7.18 10.32 10.50 7.28 . Aug -11.09 9.05 8.33 10.21 . Sep 6.29 5.35 5.58 6.17 . Oct 11.49 0.88 8.03 0.65 . Nov -0.50 21.79 7.73 16.89 . Dec 8.01 8.92 2.72 7.16 2003 Jan 1.93 -0.32 5.89 -0.37 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,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, Research Division Federal Reserve Bank of St. Louis MZM largely replaces M1. The 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 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 19 Monetary Trends 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. Bureau of Economic Analysis GDP. 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), Chicago Board of Trade Federal funds futures contract. –m/50 R(m) = a0 + (a1 + a2 )(1 – e )/(m/50) – a2 × e–m/50, and forward rates are calculated from these smoothed yields using equation (a) in table 13.1 of Shiller (1990), f(m) = [D(m)R(m) – D(m–1)] / [D(m) – D(m–1)], 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 7/15/2012. 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. 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 Bank of Canada Canadian inflation-linked bond yields and long-term interest rates. Bank of England U.K. inflation-linked 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. 20 M2 own rate. Bureau of Labor Statistics CPI. 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 & Poors Inc. 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-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, 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: Articles from this Bank’s Review are available on the Internet at Research Division Federal Reserve Bank of St. Louis
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