Full text of Monetary Trends : March 2004
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MonetaryTrends March 2004 Budget Deficits and Interest Rates O n February 2, 2004, President Bush released his budget proposals for fiscal year 2005, along with an estimate of the 2004 budget deficit of $521 billion. The return of substantial deficits has reignited debate on the implications of budget deficits for the economy. Warnings about the consequences of U.S. budget deficits, while not new, have shifted in emphasis over time. During the 1970s, emphasis was on the inflationary consequences of deficits. For example, in 1975, Ronald Reagan stated that inflation “has one cause and one cause alone: government spending more than government takes in.” By contrast, the concern voiced since the 1980s about deficits rests on the argument that they put upward pressure on real interest rates. Deficits can be a source of inflation if they are accommodated by monetary policy—that is, if higher deficits provoke an increase in money growth. This can occur if the securities issued by the government to finance deficits are purchased by the central bank. It also occurs if the securities are sold to the private sector, but the central bank then attempts to offset any resulting upward pressure on interest rates. Under either scenario, the occurrence of deficits leads to greater money growth, creating excess aggregate demand and inflationary pressure. The present-day emphasis on the implications of the deficit for interest rates, and not inflation, reflects an expectation that the Federal Reserve will not accommodate deficits with money creation, but instead will allow nominal and real interest rates to rise to whatever levels are consistent with keeping aggregate demand and inflation under control. This expectation reflects the experience since 1982, during which inflation has been controlled despite several years of high deficits (including fiscal year 1983’s $208 billion deficit of approximately 6 percent of GDP, above the 4.5 percent estimated for 2004). This experience confirms that monetary policy is capable of keeping inflation low even in the face of large changes in the government’s budgetary position. To see how deficits might matter for interest rates, it is useful to remember that nominal interest rates are the sum of an expected inflation component and a real rate of return. A non-accommodative monetary policy stance implies that the expected-inflation component of nominal rates will be unchanged in the face of higher deficits. But it also implies that monetary policy will not resist any upward pressure on real interest rates that arises from greater government borrowing. Why might real interest rates rise in response to deficit financing? With monetary accommodation of the deficit ruled out, the government needs to induce the private sector to increase its subscriptions to government bonds. If the private sector’s volume of saving has not increased one-for-one with the higher deficit, extra government borrowing must take place at the expense of the financing of private projects, such as investment in residences or factory equipment. Real interest rates rise as the government attracts funds away from these sources. The higher interest rate has the effect of reducing the private sector’s demand for capital, which is thus brought down in line with the reduced supply of saving available for private use. The lower private capital accumulation underlies what Douglas Holtz-Eakin, the director of the Congressional Budget Office, has summarized as a “modestly negative” effect of budget deficits on long-term economic potential. Much empirical evidence for the United States has found little relation between deficits and interest rates. However, a recent study1 does detect a “statistically and economically significant” relationship between higher deficit projections and expected future long-term interest rates, after controlling for other factors that determine real interest rates, including the long-term rate of economic growth. According to the author’s estimates, an increase in the projected deficit-to-GDP ratio of 1 percentage point “raise[s] long-term interest rates by roughly 25 basis points.” These estimates suggest that if the deficit-to-GDP ratio were sustained at present levels, the eventual result would be real interest rates 1 percentage point higher than would prevail under a balanced budget. —Edward Nelson 1 Laubach, Thomas. “New Evidence on the Interest Rate Effects of Budget Deficits and Debt” Finance and Economics Discussion Series Paper No. 200312, Board of Governors of the Federal Reserve System, May 2003. 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: 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 02/17/04 Monetary Trends M2 and MZM Reserve Market Rates Billions of dollars Percent 6.50 6650 Effective Federal Funds Rate Intended Federal Funds Rate 6.00 6400 5.50 5.00 6150 MZM 4.50 5900 4.00 M2 3.50 5650 3.00 5400 Primary Credit Rate 2.50 2.00 5150 1.50 4900 1.00 4650 Discount Rate 0.50 2001 2001 2002 2002 2003 2003 2004 2004 2005 Adjusted Monetary Base 2001 2001 2002 2002 2003 2003 2004 2004 2005 Treasury Yield Curve Percent change at an annual rate Percent 50 6.0 5.5 40 5.0 Week Ending: 02/14/03 01/16/04 02/13/04 4.5 30 4.0 20 3.5 3.0 10 2.5 0 2.0 1.5 -10 1.0 -20 0.5 2001 2001 2002 2002 2003 2003 2004 2004 3m 1y 2y 3y 5y 7y 10y 2005 Total Bank Credit Interest Rates Nov 03 Dec 03 Federal Funds Rate 1.00 0.98 1.00 Prime Rate 4.00 4.00 4.00 Primary Credit Rate 2.00 2.00 2.00 Conventional Mortgage Rate 5.93 5.88 5.74 . . . 3-Month Constant Maturity . 0.95 . 0.91 . 0.90 6-Month Constant Maturity 1.04 1.01 0.99 1-Year Constant Maturity 1.34 1.31 1.24 3-Year Constant Maturity 2.45 2.44 2.27 5-Year Constant Maturity 3.29 3.27 3.12 10-Year Constant Maturity 4.30 4.27 4.15 Percent change at an annual rate 50 40 30 Treasury Yields: 20 10 0 Jan 04 -10 2001 2001 2002 2002 2003 2003 2004 2004 2005 Research Division Federal Reserve Bank of St. Louis 3 updated through 02/17/04 Monetary Trends MZM and M1 Percent change from year ago 25 20 15 10 MZM 5 0 M1 -5 -10 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 04 2005 M2 Percent change from year ago 15 10 5 0 -5 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 04 2005 M3 Percent change from year ago 15 10 5 0 -5 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 04 2005 Monetary Services Index - M2 Percent change from year ago 15 10 5 0 -5 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 04 2005 Research Division 4 Federal Reserve Bank of St. Louis updated through 02/17/04 Monetary Trends Adjusted Monetary Base Percent change from year ago 20 15 10 5 0 -5 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 01 2001 2002 02 2003 03 2004 Domestic Nonfinancial Debt Currency Held by the Nonbank Public Percent change from year ago Percent change from year ago 15 15 04 2005 10 Total 10 5 0 5 Federal -5 -10 0 1996 1997 1998 1999 2000 2001 2002 2003 1996 1997 1998 1999 2000 2001 2002 2003 2004 2001 2001 2002 2002 2003 2003 2004 Time Deposits Checkable and Savings Deposits Percent change from year ago Percent change from year ago 30 30 25 25 20 20 15 2005 Savings 15 Large Denomination 10 2004 10 5 5 0 0 -5 -5 -10 2001 2001 2002 2002 2003 2003 2004 Checkable -10 Small Denomination -15 -15 2004 2005 Money Market Mutual Fund Shares 2001 2001 2002 2002 2003 2003 2004 2004 2005 Repurchase Agreements and Eurodollars Percent change from year ago Billions of dollars 60 Billions of dollars 550 400 50 Institutional Funds 40 500 30 350 Repos (left) 450 300 20 400 10 0 350 Retail Funds -10 250 Eurodollars (right) -20 200 300 2001 2001 2002 2002 2003 2003 2004 2004 2005 150 2001 2002 2003 2004 Research Division Federal Reserve Bank of St. Louis 5 updated through 02/17/04 Monetary Trends M1 Percent change at an annual rate 80 60 40 20 0 -20 -40 -60 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 04 2005 MZM Percent change at an annual rate 40 30 20 10 0 -10 -20 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 04 2005 M2 Percent change at an annual rate 40 30 20 10 0 -10 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 04 2005 M3 Percent change at an annual rate 40 30 20 10 0 -10 -20 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 04 2005 Research Division 6 Federal Reserve Bank of St. Louis updated through 02/17/04 Monetary Trends Adjusted and Required Reserves Billions of dollars 120 100 Adjusted 80 60 Required 40 20 0 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 Total Borrowings, nsa Excess Reserves plus RCB Contracts Billions of dollars Billions of dollars 3.5 28 3.0 24 2.5 04 2005 20 2.0 16 1.5 12 1.0 8 0.5 0.0 4 1997 1998 1999 2000 2001 2002 2003 2004 1997 1998 1999 2000 2001 2002 2003 2004 2005 1997 1998 1999 2000 2001 2002 2003 2004 1997 1998 1999 2000 2001 2002 2003 2004 2005 Nonfinancial Commercial Paper Percent change from year ago 60 40 20 0 -20 -40 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 04 2005 Consumer Credit Percent change from year ago 20 15 10 5 0 -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 Research Division Federal Reserve Bank of St. Louis 7 updated through 02/04/04 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 3-Year less 3-Month T-Bill 10-Year less 3-Year Note -2 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 04 2005 Real Interest Rates Percent, Real rate = Nominal rate less CPI inflation 8 6 1-Year Treasury Yield 4 2 Federal Funds Rate 0 -2 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 04 2005 Research Division 8 Federal Reserve Bank of St. Louis updated through 02/17/04 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 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 04 2005 Long-Term Interest Rates Percent 13 11 Conventional Mortgage 9 7 Corporate Aaa 5 10-Year Treasury Yield 3 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 Long-Term Interest Rates Short-Term Interest Rates Percent Percent 9 02 2003 03 2004 04 2005 6 8 5 Corporate Baa 7 90-Day Commercial Paper 4 6 3 5 2 4 2002 3-Month Treasury Yield 1 10-Year Treasury Yield 3 0 2001 2001 2002 2002 2003 2003 2004 2004 2005 2001 2001 2002 2002 2003 2003 2004 2004 2005 FOMC Intended Federal Funds Rate, Discount Rate, and Primary Credit Rate Percent 12 10 8 Intended Federal Funds Rate 6 Discount Rate Primary Credit Rate 4 2 0 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 04 2005 Research Division Federal Reserve Bank of St. Louis 9 updated through 02/17/04 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 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Calculated federal funds rate is based on Taylor's rule. See notes on page 19. Components of Taylor's Rule Actual and Potential Real GDP PCE Inflation and Projections Billions of chain-weighted 2000 dollars Percent change from year ago 11500 6 11000 5 10500 Actual 10000 4 9500 3 9000 2 Potential 8500 1 8000 7500 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 03 2003 04 *Modified for the effects of sweeps programs on reserve demand. Calculated base growth is based on McCallum's rule. Actual base growth is percent change from year ago. See notes on page 19. Components of McCallum's Rule Monetary Base Velocity Growth Real Output Growth Percent Percent 8 8 1-Year Moving Average 1-Year Moving Average 4 4 10-Year Moving Average 0 0 4-Year Moving Average -4 -8 -4 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 Research Division 10 Federal Reserve Bank of St. Louis updated through 02/17/04 Monetary Trends Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent 8 6 Percent, daily data 1.5 Week Ending: 02/14/03 01/16/04 02/13/04 1.4 Mar 2004 4 1.3 2 1.2 0 2y 5y 3y 7y 10y || || Apr 2004 Feb 2004 1.1 12/15 12/22 12/29 01/05 01/12 01/19 01/26 02/02 02/09 02/16 Rates on Selected Federal Funds Futures Contracts Rates on Federal Funds Futures on Selected Dates Percent, daily data Percent 1.2 1.2 12/12/2003 Mar 2004 1.1 1.1 || || || | 01/16/2004 Apr 2004 1.0 02/12/2004 1.0 Feb 2004 0.9 0.9 12/15 12/22 12/29 01/05 01/12 01/19 01/26 02/02 02/09 02/16 Feb Mar Apr May Jun Jul Contract Month Inflation-Indexed Treasury Bonds Inflation-Indexed Treasury Yield Spreads Percent, weekly data Percent, weekly data 5.0 4 4.5 3 4.0 30-Year 3.5 30-Year 3.0 2 10-Year 2.5 10-Year 1 2.0 1.5 0 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 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 3 France || || 4 Canada 2 France 3 2 U.K. U.K. 1 2000 2001 2002 2003 2004 01/01/2000 01/01/2001 01/01/2002 01/01/2003 01/01/2004 01/01/2005 1 2000 2001 2002 2003 2004 01/01/2000 01/01/2001 01/01/2002 01/01/2003 01/01/2004 01/01/2005 Research Division Federal Reserve Bank of St. Louis 11 updated through 02/17/04 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 9497 86 9862 87 10227 88 10593 89 10958 90 11323 91 11688 92 12054 93 12419 94 12784 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 95 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 Interest Rate Spread = 3-Month T-Bill less MZM Own Rate 11 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 02/17/04 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 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. Research Division Federal Reserve Bank of St. Louis 13 updated through 02/17/04 Monetary Trends Bank Credit Percent change from year ago 20 15 10 5 0 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 Investment Securities in Bank Credit at Commercial Banks Percent change from year ago 25 20 15 10 5 0 -5 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 Total Loans and Leases in Bank Credit at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 Commercial and Industrial Loans at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 -10 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 Research Division 14 Federal Reserve Bank of St. Louis updated through 02/09/04 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 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 Recent Inflation and Long-Term Interest Rates Consumer Price Inflation Rates Long-Term Government Bond Rates Percent change from year ago 2003Q1 2003Q2 2003Q3 2003Q4 Oct03 Percent Nov03 Dec03 Jan04 United States 2.88 2.15 2.20 1.91 4.29 4.30 4.27 4.15 Canada 4.47 2.81 2.11 1.71 4.85 4.79 4.66 4.61 France 2.38 1.92 1.95 2.19 4.46 4.54 4.38 . Germany 1.16 0.87 1.00 1.16 4.20 4.40 4.30 4.17 Italy Japan United Kingdom 2.72 2.70 2.74 2.53 4.38 4.51 4.46 4.32 -0.23 -0.27 -0.24 -0.27 1.40 1.39 1.35 1.33 3.07 3.01 2.93 2.66 4.89 5.05 4.89 . Inflation and Long-Term Interest Rate Differentials Percent Percent 3 3 Canada Canada U.K. 0 0 Germany U.K. Japan Germany -3 -3 Japan Inflation differential = Foreign inflation less U.S. inflation Long-term rate differential = Foreign rate less U.S. rate -6 01/01/2001 -6 2001 01/01/2002 2002 01/01/2003 2003 01/01/2004 2004 01/01/2005 01/01/2001 2001 01/01/2002 2002 01/01/2003 2003 01/01/2004 2004 01/01/2005 Research Division Federal Reserve Bank of St. Louis 15 updated through 02/17/04 Monetary Trends Money Stock Bank Adjusted M1 MZM M2 M3 Credit Monetary Base Reserves MSI M2 1999. 2000. 1101.461 4169.937 4525.763 6252.431 4577.111 574.181 88.664 257.932 1103.437 4508.023 4801.620 6841.538 5025.725 607.106 84.511 272.580 2001. 2002. 1136.500 5219.281 5221.963 7621.282 5343.662 641.167 85.931 296.359 1190.124 5887.329 5619.261 8231.077 5595.013 697.071 87.927 319.470 2003. 1262.932 6317.953 6008.556 8765.436 6119.217 740.704 92.800 343.857 2001 1 1100.804 4861.100 5035.561 7281.121 5270.407 619.676 82.207 285.554 . 2 1116.621 5117.138 5166.553 7549.287 5311.739 629.484 82.722 293.208 . 3 1160.698 5316.009 5282.951 7715.013 5361.261 651.930 90.905 300.165 . 4 1167.878 5582.876 5402.785 7939.708 5431.241 663.578 87.887 306.510 2002 1 1185.211 5738.094 5501.579 8068.915 5415.096 680.264 88.156 312.038 . 2 1181.936 5824.414 5553.187 8146.642 5482.935 692.937 86.979 315.612 . 3 1187.477 5923.564 5653.131 8261.882 5655.398 702.753 86.821 321.565 . 4 1205.872 6063.246 5769.148 8446.869 5826.622 712.330 89.753 328.665 2003 1 1229.731 6182.629 5873.213 8587.726 5942.673 726.821 90.845 335.119 . 2 1255.661 6276.875 5992.305 8709.527 6122.216 738.225 91.745 342.359 . 3 1279.488 6433.139 6097.803 8907.556 6197.151 744.023 94.577 348.910 . 4 1286.849 6379.168 6070.903 8856.933 6214.828 753.748 94.034 349.041 2002 Jan 1182.689 5696.268 5477.750 8032.700 5413.877 673.713 87.295 310.563 . Feb 1184.554 5745.814 5507.883 8077.119 5420.175 681.914 89.237 312.332 . Mar 1188.391 5772.199 5519.103 8096.927 5411.236 685.165 87.937 313.219 . Apr 1177.508 5793.204 5525.247 8118.898 5435.551 689.008 88.352 313.900 . May 1181.982 5829.403 5556.129 8154.879 5484.325 692.736 86.586 315.774 . Jun 1186.317 5850.636 5578.184 8166.150 5528.930 697.068 85.999 317.161 . 1192.608 5892.114 5620.738 8207.875 5580.858 701.032 86.101 319.407 . Jul Aug 1181.130 5929.925 5655.974 8270.785 5662.922 702.878 86.383 321.675 . Sep 1188.693 5948.652 5682.682 8306.987 5722.413 704.350 87.978 323.612 . Oct 1200.029 5965.696 5728.598 8334.707 5755.031 710.665 89.827 326.355 . Nov 1202.601 6080.440 5775.064 8466.372 5835.333 712.473 89.839 328.972 . Dec 1214.985 6143.601 5803.783 8539.528 5889.501 713.851 89.594 330.668 2003 Jan 1218.299 6154.851 5836.155 8552.187 5881.453 719.527 89.443 332.855 . Feb 1232.724 6188.096 5878.971 8589.852 5957.469 728.658 91.817 335.424 . Mar 1238.170 6204.940 5904.512 8621.138 5989.097 732.279 91.275 337.079 . Apr 1243.331 6235.869 5947.668 8657.579 6028.489 736.486 92.278 339.697 . May 1255.196 6272.692 5996.102 8712.052 6141.144 738.662 91.418 342.547 . Jun 1268.457 6322.063 6033.144 8758.949 6197.015 739.526 91.540 344.833 . Jul Aug 1273.421 6415.136 6078.241 8887.320 6201.565 741.236 93.471 347.715 . 1282.118 6448.309 6117.671 8923.371 6191.173 745.282 95.410 349.977 . Sep 1282.925 6435.972 6097.498 8911.978 6198.716 745.552 94.851 349.039 . Oct 1284.321 6402.502 6079.124 8876.557 6178.460 753.729 95.173 348.997 . Nov 1283.603 6378.752 6071.281 8855.612 6218.372 754.692 94.634 349.072 . Dec 1292.622 6356.249 6062.304 8838.631 6247.651 752.823 92.295 349.053 2004 Jan 1286.435 6366.069 6065.334 8918.760 6304.688 756.654 92.434 350.143 *All values are given in billions of dollars. Research Division 16 Federal Reserve Bank of St. Louis updated through 02/17/04 Monetary Trends Federal Discount Primary Prime 3-mo Corporate S&L Conventional Funds Rate Credit Rate Rate CDs 3-mo 3-yr 10-yr Aaa Bonds Aaa Bonds Mortgage 1999. 2000. 2001. 2002. 2003. 4.97 6.24 3.89 1.67 1.13 4.62 5.73 3.41 1.17 . . . . . 2.11 7.99 9.23 6.92 4.68 4.12 5.33 6.46 3.69 1.73 1.15 4.78 6.00 3.47 1.63 1.03 5.49 6.22 4.08 3.10 2.11 5.64 6.03 5.02 4.61 4.02 7.04 7.62 7.08 6.49 5.67 5.28 5.58 5.01 4.87 4.52 7.43 8.06 6.97 6.54 5.82 1 2 3 4 5.59 4.33 3.50 2.13 5.11 3.83 3.06 1.64 . . . . 8.62 7.34 6.57 5.16 5.26 4.10 3.34 2.06 4.95 3.75 3.24 1.94 4.64 4.43 3.93 3.33 5.05 5.27 4.98 4.77 7.08 7.22 7.11 6.92 5.03 5.11 4.95 4.97 7.01 7.13 6.97 6.78 1 2 3 4 1.73 1.75 1.74 1.44 1.25 1.25 1.25 0.94 . . . . 4.75 4.75 4.75 4.45 1.82 1.83 1.76 1.49 1.76 1.75 1.67 1.36 3.75 3.77 2.62 2.27 5.08 5.10 4.26 4.01 6.62 6.71 6.35 6.28 5.02 5.01 4.72 4.71 6.97 6.81 6.29 6.08 1 2 3 4 1.25 1.25 1.02 1.00 . . . . 2.25 2.23 2.00 2.00 4.25 4.24 4.00 4.00 1.26 1.17 1.07 1.10 1.18 1.06 0.95 0.93 2.07 1.77 2.20 2.38 3.92 3.62 4.23 4.29 6.00 5.31 5.70 5.66 4.60 4.28 4.68 4.52 5.83 5.51 6.01 5.92 2002 Jan . Feb Mar . 1.73 1.74 1.73 1.25 1.25 1.25 . . . 4.75 4.75 4.75 1.74 1.82 1.91 1.68 1.76 1.83 3.56 3.55 4.14 5.04 4.91 5.28 6.55 6.51 6.81 5.05 4.93 5.09 7.00 6.89 7.01 . . . Apr May Jun 1.75 1.75 1.75 1.25 1.25 1.25 . . . 4.75 4.75 4.75 1.87 1.82 1.81 1.75 1.76 1.73 4.01 3.80 3.49 5.21 5.16 4.93 6.76 6.75 6.63 5.09 5.03 4.92 6.99 6.81 6.65 . . . Jul Aug Sep 1.73 1.74 1.75 1.25 1.25 1.25 . . . 4.75 4.75 4.75 1.79 1.73 1.76 1.71 1.65 1.66 3.01 2.52 2.32 4.65 4.26 3.87 6.53 6.37 6.15 4.81 4.78 4.58 6.49 6.29 6.09 . . . Oct Nov Dec 1.75 1.34 1.24 1.25 0.83 0.75 . . . 4.75 4.35 4.25 1.73 1.39 1.34 1.61 1.25 1.21 2.25 2.32 2.23 3.94 4.05 4.03 6.32 6.31 6.21 4.66 4.77 4.70 6.11 6.07 6.05 2003 Jan . Feb Mar . 1.24 1.26 1.25 . . . . 2.25 2.25 4.25 4.25 4.25 1.29 1.27 1.23 1.19 1.19 1.15 2.18 2.05 1.98 4.05 3.90 3.81 6.17 5.95 5.89 4.72 4.57 4.51 5.92 5.84 5.75 . . . Apr May Jun 1.26 1.26 1.22 . . . 2.25 2.25 2.20 4.25 4.25 4.22 1.24 1.22 1.04 1.15 1.09 0.94 2.06 1.75 1.51 3.96 3.57 3.33 5.74 5.22 4.97 4.60 4.16 4.07 5.81 5.48 5.23 . . . Jul Aug Sep 1.01 1.03 1.01 . . . 2.00 2.00 2.00 4.00 4.00 4.00 1.05 1.08 1.08 0.92 0.97 0.96 1.93 2.44 2.23 3.98 4.45 4.27 5.49 5.88 5.72 4.59 4.82 4.63 5.63 6.26 6.15 . . . Oct Nov Dec 1.01 1.00 0.98 . . . 2.00 2.00 2.00 4.00 4.00 4.00 1.10 1.11 1.10 0.94 0.95 0.91 2.26 2.45 2.44 4.29 4.30 4.27 5.70 5.65 5.62 4.64 4.50 4.41 5.95 5.93 5.88 2004 Jan 1.00 . 2.00 4.00 1.06 0.90 2.27 4.15 5.54 . 5.74 2001 . . . 2002 . . . 2003 . . . Treasury Yields *All values are given as a percent at an annual rate. Research Division Federal Reserve Bank of St. Louis 17 updated through 02/17/04 Monetary Trends M1 MZM M2 M3 Percent change at an annual rate 1999. 2000. 2001. 2002. 2003. 2.00 0.18 3.00 4.72 6.12 12.41 8.11 15.78 12.80 7.31 7.56 6.10 8.75 7.61 6.93 8.74 9.42 11.40 8.00 6.49 1 2 3 4 2.83 5.75 15.79 2.47 19.22 21.07 15.55 20.08 10.89 10.41 9.01 9.07 13.45 14.73 8.78 11.65 1 2 3 4 5.94 -1.11 1.88 6.20 11.12 6.02 6.81 9.43 7.31 3.75 7.20 8.21 6.51 3.85 5.66 8.96 1 2 3 4 7.91 8.43 7.59 2.30 7.88 6.10 9.96 -3.36 7.22 8.11 7.04 -1.76 6.67 5.67 9.09 -2.27 2002 Jan . Feb Mar . 5.58 1.89 3.89 6.48 10.44 5.51 6.08 6.60 2.44 3.15 6.64 2.94 . . . Apr May Jun -10.99 4.56 4.40 4.37 7.50 4.37 1.34 6.71 4.76 3.26 5.32 1.66 . . . Jul Aug Sep 6.36 -11.55 7.68 8.51 7.70 3.79 9.15 7.52 5.67 6.13 9.20 5.25 . . . Oct Nov Dec 11.44 2.57 12.36 3.44 23.08 12.47 9.70 9.73 5.97 4.00 18.96 10.37 2003 Jan . Feb Mar . 3.27 14.21 5.30 2.20 6.48 3.27 6.69 8.80 5.21 1.78 5.28 4.37 . . . Apr May Jun 5.00 11.45 12.68 5.98 7.09 9.44 8.77 9.77 7.41 5.07 7.55 6.46 . . . Jul Aug Sep 4.70 8.20 0.76 17.67 6.21 -2.30 8.97 7.78 -3.96 17.59 4.87 -1.53 . . . Oct Nov Dec 1.31 -0.67 8.43 -6.24 -4.45 -4.23 -3.62 -1.55 -1.77 -4.77 -2.83 -2.30 2004 Jan -5.74 1.85 0.60 10.88 2001 . . . 2002 . . . 2003 . . . 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). These rates where duration is approximated as D(m) = (1 – 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 1/15/2014. 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 2000 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 2000 dollars. Page 14: Investment Securities are all securities held by commercial banks in both investment and trading accounts. Page 15: Inflation Rate Differentials are the differences between the foreign consumer price inflation rates and year-over-year changes in the U.S. all-items Consumer Price Index. 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 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.* ____ 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. 20 Research Division Federal Reserve Bank of St. Louis
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