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MonetaryTrends March 2005 Wicksell’s Natural Rate M ost central banks now implement monetary policy by setting a near-term target for an overnight interbank interest rate. In turn, policymakers face the difficult issue of how to choose, and adjust, the target rate. One widely discussed policy guide is the “natural,” or equilibrium, real rate of interest. To use this guide, one compares the level of a medium-term financial-market real interest rate—such as the yield on a 10-year Treasury inflation-indexed bond— to an estimate of the long-term “natural,” or equilibrium, rate of return on the economy’s capital stock. The idea that inflation will be approximately constant when these two rates of return are equal is an extension of an idea advanced in 1898 by the Swedish economist Knut Wicksell.1 Wicksell, throughout his career, was an unwavering advocate of the quantity theory of money. He argued that increases in the economy’s average level of prices were due to excessive increases in the monetary base, that is, increases beyond the increase in the economy’s overall output. Precisely how this occurred, he felt, was muddled in writings of the time. With the natural rate concept, he sought to illuminate the transmission mechanism behind the quantity theory and to begin connecting the monetary base, banks’ extension of credit, aggregate demand, and inflation. Wicksell based his theory on a comparison of the marginal product of capital with the cost of borrowing money. If the money rate of interest was below the natural rate of return on capital, entrepreneurs would borrow at the money rate to purchase capital (equipment and buildings), thereby increasing demand for all types of resources and their prices; the converse would be true if the money rate was greater than the natural rate of return on capital. (Wicksell did not distinguish real from nominal interest rates because, under the gold standard of the time, sustained inflation was unlikely. Here, all interest rates and rates of return should be interpreted as real rates.) So long as the money rate of interest persisted below the natural rate of return on capital, upward price pressures would continue. In Wicksell’s theory, price pressure could arise even if new credit were extended only against increases in production, that is, against “real bills.” Price stability would result only when the money rate of interest and the natural rate of return on capital—the marginal product of capital—were equal. Wicksell did not complete his theory of money, output, and inflation. He did not propose a market mechanism that determined the money rate of interest. Nor did he advocate an activist policy based on the natural rate for Sweden’s central bank, the Riksbank. His work did, however, inspire later writers. John Maynard Keynes took up Wicksell’s unfinished quest for a theory connecting the price level to money and credit in his 1930 A Treatise on Money. Implementing monetary policy by means of a natural rate framework has many uncertainties. The most relevant financial market rates for household and firm behavior likely are not the overnight rates set by central banks, but rather are intermediaterun rates of 5 to 10 years to maturity. Shocks to the economy, such as an energy or financial crisis, may cause near-term real rates of return on capital to deviate significantly from the longerterm rate of return on capital. Further, the natural rate is not observable. It varies with the economy’s underlying ability to produce, and must be estimated from empirical models often subject to substantial disagreement. Beyond differences in structure, models depend on assumed long-run projections for variables such as productivity growth, the share of national income received by capital, the aggregate savings rate from GDP, the growth of the labor force, the rate of depreciation of capital, and the variances and covariance of shocks to the economy. Agreement among economists on these issues does not seem imminent. Ironically, Wicksell’s work laid the foundations that have led economists during the twentieth century to shift away from analysis of the quantity theory and, in some cases, to omit money entirely from their models. But, models based on the natural rate concept likely have some distance to go before they become useful guides to monetary policy. —Richard G. Anderson Further reading: Angelo Mascaro, “Using the Natural Rate Concept to Assess the Consistency of Projections Ten Years Ahead for Real Interest Rates and Inflation,” Congressional Budget Office Technical Paper Series, number 2004-5, March 2004; Thomas M. Humphrey, “Knut Wicksell and Gustav Cassel on the Cumulative Process and the Price-Stabilizing Policy Rule,” Federal Reserve Bank of Richmond Economic Quarterly, 88(3), Summer 2002; Roger W. Ferguson, Jr., “Equilibrium Real Interest Rate: Theory and Application,” speech at the University of Connecticut School of Business, October 29, 2004, available at <www.federalreserve.gov/boarddocs/speeches/20041029/default.htm>. 1 Wicksell introduced the natural rate in the 1898 paper, “The Influence of the Rate of Interest on Commodity Prices,” reprinted in Erik Lindahl, ed., Selected Papers on Economic Theory by Knut Wicksell (1958, pp. 67-92); it remains one of the clearest expositions. He expanded the idea in Geldzins und Guterpreise (1898), translated by R.F. Kahn as Interest and Prices (1936). The definitive biography is Torsten Gårdlund, The Life of Knut Wicksell (1958). Views expressed do not necessarily reflect official positions of the Federal Reserve System. 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. Visit the Research Division’s website at research.stlouisfed.org/publications/mt to download the current version of this publication or register for e-mail notification updates. For more information on data in the publication, please visit research.stlouisfed.org/fred2 or call (314) 444-8590. updated through 02/15/05 Monetary Trends M2 and MZM Reserve Market Rates Billions of dollars Percent 6900 4.50 Effective Federal Funds Rate Intended Federal Funds Rate 4.00 6650 MZM 3.50 6400 3.00 6150 Primary Credit Rate 2.50 2.00 M2 5900 1.50 5650 1.00 Discount Rate 5400 0.50 2002 2002 2003 2003 2004 2004 2005 2005 2006 Adjusted Monetary Base 2002 2002 2003 2003 2004 2004 2005 2005 2006 Treasury Yield Curve Percent change at an annual rate Percent 30 6.0 5.5 5.0 20 Week Ending: 02/13/04 01/14/05 02/11/05 4.5 4.0 10 3.5 3.0 0 2.5 2.0 -10 1.5 1.0 -20 0.5 2002 2002 2003 2003 2004 2004 2005 2005 3m 1y 2y 3y 5y 7y 10y 2006 Total Bank Credit Interest Rates Nov 04 Dec 04 Federal Funds Rate 1.93 2.16 2.28 Prime Rate 4.93 5.15 5.25 Primary Credit Rate 2.93 3.15 3.25 Conventional Mortgage Rate 5.73 5.75 5.71 . . . 3-Month Constant Maturity . 2.11 . 2.22 . 2.37 6-Month Constant Maturity 2.32 2.50 2.68 1-Year Constant Maturity 2.50 2.67 2.86 3-Year Constant Maturity 3.09 3.21 3.39 5-Year Constant Maturity 3.53 3.60 3.71 10-Year Constant Maturity 4.19 4.23 4.22 Percent change at an annual rate 30 20 Treasury Yields: 10 0 Jan 05 -10 2002 2002 2003 2003 2004 2004 2005 2005 2006 Research Division Federal Reserve Bank of St. Louis 3 updated through 02/14/05 Monetary Trends MZM and M1 Percent change from year ago 25 20 15 10 MZM 5 0 M1 -5 -10 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 05 2006 M2 Percent change from year ago 15 10 5 0 -5 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 05 2006 M3 Percent change from year ago 15 10 5 0 -5 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 05 2006 Monetary Services Index - M2 Percent change from year ago 15 10 5 0 -5 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 05 2006 Research Division 4 Federal Reserve Bank of St. Louis updated through 02/14/05 Monetary Trends Adjusted Monetary Base Percent change from year ago 20 15 10 5 0 -5 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 04 2005 Domestic Nonfinancial Debt Currency Held by the Nonbank Public Percent change from year ago Percent change from year ago 15 15 05 2006 10 10 5 Total 0 5 -5 Federal -10 0 1997 1998 1999 2000 2001 2002 2003 2004 1997 1998 1999 2000 2001 2002 2003 2004 2005 2002 2002 2003 2003 2004 2004 2005 Time Deposits Checkable and Savings Deposits Percent change from year ago Percent change from year ago 30 30 25 25 20 20 15 15 10 10 Large Denomination 5 0 -5 -5 2002 2002 2003 2003 Savings 2004 Checkable -10 Small Denomination -15 2006 5 0 -10 2005 -15 2004 2005 2005 2006 Money Market Mutual Fund Shares 2002 2002 2003 2003 2004 2004 2005 2005 2006 Repurchase Agreements and Eurodollars Percent change from year ago Billions of dollars 50 600 40 550 Billions of dollars 450 400 Repos (left) 30 Institutional Funds 500 350 450 300 20 10 400 0 250 Eurodollars (right) 350 -10 Retail Funds -20 2002 2002 2003 200 300 2003 2004 2004 2005 2005 2006 150 2002 2003 2004 2005 Research Division Federal Reserve Bank of St. Louis 5 updated through 02/14/05 Monetary Trends M1 Percent change at an annual rate 80 60 40 20 0 -20 -40 -60 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 05 2006 MZM Percent change at an annual rate 40 30 20 10 0 -10 -20 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 05 2006 M2 Percent change at an annual rate 40 30 20 10 0 -10 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 05 2006 M3 Percent change at an annual rate 40 30 20 10 0 -10 -20 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 05 2006 Research Division 6 Federal Reserve Bank of St. Louis updated through 02/14/05 Monetary Trends Adjusted and Required Reserves Billions of dollars 120 100 Adjusted 80 60 Required 40 20 0 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 Total Borrowings, nsa Excess Reserves plus RCB Contracts Billions of dollars Billions of dollars 0.8 16 05 2006 0.6 12 0.4 8 0.2 0.0 4 1998 1999 2000 2001 2002 2003 2004 2005 1998 1999 2000 2001 2002 2003 2004 2005 2006 1998 1999 2000 2001 2002 2003 2004 2005 1998 1999 2000 2001 2002 2003 2004 2005 2006 *Actual value for September 2001 is $3.4 billion. *Actual value for September 2001 is $26.43 billion. Nonfinancial Commercial Paper Percent change from year ago 60 40 20 0 -20 -40 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 05 2006 Consumer Credit Percent change from year ago 20 15 10 5 0 -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 Research Division Federal Reserve Bank of St. Louis 7 updated through 02/02/05 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 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 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 4 10-Year less 3-Month T-Bill 2 0 3-Year less 3-Month T-Bill 10-Year less 3-Year Note -2 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 05 2006 Real Interest Rates Percent, Real rate = Nominal rate less CPI inflation 8 6 1-Year Treasury Yield 4 2 Federal Funds Rate 0 -2 -4 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 05 2006 Research Division 8 Federal Reserve Bank of St. Louis updated through 02/02/05 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 88 1988 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 05 2006 Long-Term Interest Rates Percent 13 11 Conventional Mortgage 9 7 5 Corporate Aaa 10-Year Treasury Yield 3 88 1988 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 Long-Term Interest Rates Short-Term Interest Rates Percent Percent 9 2003 03 2004 04 2005 05 2006 4 8 3 Corporate Baa 7 6 90-Day Commercial Paper 2 5 1 3-Month Treasury Yield 4 10-Year Treasury Yield 3 2002 2002 2003 2003 2004 2004 0 2005 2005 2006 2002 2002 2003 2003 2004 2004 2005 2005 2006 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 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 05 2006 Research Division Federal Reserve Bank of St. Louis 9 updated through 02/14/05 Monetary Trends Federal Funds Rate and Inflation Targets Percent 12 4% 3% 2% 1% 0% Target Inflation Rates 9 Actual 6 3 0 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 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 Billions of chain-weighted 2000 dollars Percent change from year ago 11500 6 11000 5 10500 4 10000 Actual 9500 3 9000 2 Potential 8500 1 8000 7500 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Monetary Base Growth* and Inflation Targets Percent 12 Actual 9 6 3 Target Inflation Rates 0% 1% 2% 3% 4% 0 1995 95 96 1996 1997 97 98 1998 99 1999 00 2000 01 2001 02 2002 2003 03 04 2004 05 *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 4-Year Moving Average -8 -4 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 Research Division 10 Federal Reserve Bank of St. Louis updated through 02/15/05 Monetary Trends Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent 8 6 Percent, daily data 3.2 Week Ending: 02/13/04 01/14/05 02/11/05 Apr 2005 3.1 3.0 2.9 4 Mar 2005 2.8 2 Feb 2005 2.7 0 2y 5y 3y 7y 10y 2.6 12/13 12/20 12/27 01/03 01/10 01/17 01/24 01/31 02/07 02/14 Rates on Selected Federal Funds Futures Contracts Rates on Federal Funds Futures on Selected Dates Percent, daily data Percent 2.9 3.2 02/11/2005 Apr 2005 2.8 3.0 01/14/2005 2.7 2.8 Mar 2005 2.6 2.6 2.5 12/17/2004 Feb 2005 2.4 2.4 12/13 12/20 12/27 01/03 01/10 01/17 01/24 01/31 02/07 02/14 Feb Mar Apr May Jun Jul Contract Month Inflation-Indexed Treasury Securities Inflation-Indexed Treasury Yield Spreads Percent, weekly data Percent, weekly data 4.0 4 3.5 3 30-Year 3.0 30-Year 2.5 2.0 2 10-Year 10-Year 1 1.5 1.0 0 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2001 2001 2002 2002 2003 2003 2004 2004 2005 Inflation-Indexed 10-Year Government Notes Inflation-Indexed 10-Year Government Yield Spreads Percent, weekly data Percent, weekly data 4 2005 2006 4 France 3 U.K. 2 U.K. 3 U.S. 2 U.S. 1 1 0 France 0 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 Research Division Federal Reserve Bank of St. Louis 11 updated through 02/14/05 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 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 04 16437 Interest Rates Percent 10 8 3-Month T-Bill 6 4 M2 Own MZM Own 2 0 9862 87 10227 88 10593 89 10958 90 11323 91 11688 92 12054 93 12419 94 12784 95 13149 13515 97 13880 98 14245 99 14610 00 14976 01 15341 02 15706 03 16071 MZM Velocity and Interest Rate Spread M2 Velocity and Interest Rate Spread Ratio Scale Ratio Scale 3.50 04 16437 2.25 Velocity = Nominal GDP / M2 Velocity = Nominal GDP / MZM 96 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 02/14/05 Monetary Trends Gross Domestic Product Percent change from year ago 20 15 10 5 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 Dashed lines indicate 10-year moving averages. Real Gross Domestic Product 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 Dashed lines indicate 10-year moving averages. Gross Domestic Product Price Index Percent change from year ago 20 15 10 5 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 Dashed lines indicate 10-year moving averages. M2 Percent change from year ago 20 15 10 5 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 Dashed lines indicate 10-year moving averages. Research Division Federal Reserve Bank of St. Louis 13 updated through 02/14/05 Monetary Trends Bank Credit Percent change from year ago 20 15 10 5 0 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 Investment Securities in Bank Credit at Commercial Banks Percent change from year ago 25 20 15 10 5 0 -5 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 Total Loans and Leases in Bank Credit at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 Commercial and Industrial Loans at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 -10 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 Research Division 14 Federal Reserve Bank of St. Louis updated through 02/14/05 Monetary Trends Standard & Poor's 500 1600 48 1400 42 Composite Index (left) 1200 36 1000 30 800 24 Price/Earnings Ratio (right) 600 18 400 12 200 6 0 0 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Recent Inflation and Long-Term Interest Rates Consumer Price Inflation Rates Long-Term Government Bond Rates Percent change from year ago 2004Q1 2004Q2 2004Q3 2004Q4 Percent Nov04 Dec04 Oct04 Jan05 United States 1.80 2.84 2.71 3.39 4.10 4.19 4.23 4.22 Canada 0.87 2.18 1.99 2.29 4.56 4.48 4.33 4.26 France 1.80 2.38 2.28 2.08 3.98 3.86 3.64 . Germany 1.02 1.79 1.88 1.98 3.89 3.78 3.58 3.56 Italy Japan United Kingdom 2.29 2.33 2.23 1.98 4.13 4.00 3.79 3.71 -0.17 -0.27 -0.10 0.48 1.49 1.46 1.40 1.36 2.58 2.75 3.09 3.41 4.77 4.69 4.50 . Inflation and Long-Term Interest Rate Differentials Percent Percent 3 3 Canada U.K. Canada 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 01/01/2002 -6 2002 01/01/2003 2003 01/01/2004 2004 01/01/2005 2005 01/01/2006 01/01/2002 2002 01/01/2003 2003 01/01/2004 2004 01/01/2005 2005 01/01/2006 Research Division Federal Reserve Bank of St. Louis 15 updated through 02/14/05 Monetary Trends Money Stock Bank Adjusted M1 MZM M2 M3 Credit Monetary Base Reserves MSI M2 2000. 2001. 1103.482 4508.931 4801.405 6861.391 5025.616 607.106 84.511 242.158 1136.938 5221.308 5219.493 7643.641 5345.608 641.167 85.923 263.728 2002. 2003. 1192.032 5891.818 5614.811 8257.342 5597.371 697.072 87.914 285.718 1264.043 6322.368 5998.417 8778.864 6120.338 740.674 92.828 305.754 2004. 1332.206 6566.221 6266.947 9232.705 6592.605 776.404 95.445 320.027 2002 1 1186.742 5743.563 5501.839 8095.861 5420.280 680.264 88.149 279.335 . 2 1184.043 5821.418 5542.972 8164.934 5496.363 692.937 86.970 281.994 . 3 1189.554 5927.767 5646.008 8288.250 5655.519 702.753 86.805 287.587 . 4 1207.787 6074.523 5768.425 8480.324 5817.320 712.332 89.733 293.957 2003 1 1231.793 6191.493 5866.100 8619.232 5955.829 726.828 90.855 298.983 . 2 1257.815 6268.964 5969.410 8724.380 6135.943 738.230 91.756 304.217 . 3 1279.387 6430.927 6082.462 8889.717 6186.516 743.993 94.581 309.981 . 4 1287.175 6398.090 6075.694 8882.127 6203.062 753.644 94.120 309.833 2004 1 1306.187 6435.077 6128.069 9005.386 6426.395 761.085 94.365 312.703 . 2 1326.213 6573.025 6247.233 9217.792 6556.092 770.823 96.014 318.898 . 3 1338.921 6607.019 6302.814 9315.463 6643.523 782.544 96.267 321.931 . 4 1357.502 6649.765 6389.672 9392.178 6744.411 791.162 95.131 326.577 2003 Jan 1221.229 6169.771 5836.751 8589.249 5888.762 719.531 89.448 297.491 . Feb 1235.831 6199.598 5872.755 8625.665 5970.192 728.668 91.827 299.307 . Mar 1238.319 6205.110 5888.794 8642.783 6008.533 732.286 91.291 300.152 . Apr 1244.962 6227.854 5924.008 8672.877 6048.780 736.490 92.281 301.939 . May 1259.077 6263.556 5971.507 8723.251 6152.828 738.664 91.427 304.310 . Jun 1269.407 6315.482 6012.716 8777.011 6206.222 739.536 91.559 306.403 . 1273.077 6412.210 6057.766 8869.850 6194.614 741.241 93.485 308.719 . Jul Aug 1282.370 6442.120 6103.860 8901.566 6179.834 745.242 95.383 311.030 . Sep 1282.713 6438.451 6085.761 8897.736 6185.100 745.496 94.876 310.195 . Oct 1283.635 6414.302 6077.735 8893.546 6161.556 753.680 95.233 309.855 . Nov 1285.115 6394.915 6072.769 8875.421 6198.066 754.634 94.768 309.689 . Dec 1292.776 6385.052 6076.579 8877.415 6249.564 752.618 92.360 309.955 2004 Jan 1289.936 6397.790 6089.282 8936.660 6320.786 756.453 92.552 310.781 . Feb 1307.691 6429.406 6128.113 9001.139 6440.745 762.852 95.247 312.698 . Mar 1320.933 6478.036 6166.813 9078.359 6517.653 763.951 95.297 314.630 . Apr 1321.296 6526.037 6204.342 9144.747 6536.501 767.620 96.489 316.639 . May 1324.778 6590.647 6262.616 9234.005 6544.590 769.879 95.190 319.704 . Jun 1332.565 6602.390 6274.742 9274.625 6587.186 774.970 96.364 320.351 . Jul Aug 1325.481 6589.003 6277.472 9277.705 6601.644 780.300 95.252 320.711 . 1343.371 6602.592 6298.020 9310.302 6631.301 781.299 95.502 321.632 . Sep 1347.910 6629.461 6332.950 9358.383 6697.624 786.033 98.047 323.451 . Oct 1347.754 6627.746 6357.826 9363.307 6709.579 791.929 96.893 324.898 . Nov 1362.774 6651.249 6394.153 9386.401 6749.942 793.566 96.144 326.816 . Dec 1361.977 6670.300 6417.037 9426.827 6773.712 787.992 92.357 328.018 2005 Jan 1353.503 6664.204 6430.278 9468.080 6835.395 793.322 94.302 328.746 *All values are given in billions of dollars. Research Division 16 Federal Reserve Bank of St. Louis updated through 02/14/05 Monetary Trends Federal Primary Prime 3-mo Funds Credit Rate Rate CDs 3-mo Treasury Yields 3-yr 10-yr Corporate S&L Aaa Bonds Aaa Bonds Conventional Mortgage 2000. 2001. 2002. 2003. 2004. 6.24 3.89 1.67 1.13 1.35 . . . 2.11 2.34 9.23 6.92 4.68 4.12 4.34 6.46 3.69 1.73 1.15 1.56 6.00 3.47 1.63 1.03 1.40 6.22 4.08 3.10 2.11 2.78 6.03 5.02 4.61 4.02 4.27 7.62 7.08 6.49 5.67 5.63 5.58 5.01 4.87 4.52 4.50 8.06 6.97 6.54 5.82 5.84 1 2 3 4 1.73 1.75 1.74 1.44 . . . . 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 1 2 3 4 1.00 1.01 1.43 1.95 2.00 2.00 2.42 2.94 4.00 4.00 4.42 4.94 1.05 1.25 1.70 2.25 0.93 1.10 1.51 2.04 2.17 2.98 2.92 3.05 4.02 4.60 4.30 4.17 5.45 5.93 5.64 5.48 4.26 4.82 4.54 4.39 5.61 6.13 5.89 5.73 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 . Feb Mar . 1.00 1.01 1.00 2.00 2.00 2.00 4.00 4.00 4.00 1.06 1.05 1.05 0.90 0.94 0.95 2.27 2.25 2.00 4.15 4.08 3.83 5.54 5.50 5.33 4.42 4.26 4.11 5.74 5.64 5.45 . . . Apr May Jun 1.00 1.00 1.03 2.00 2.00 2.01 4.00 4.00 4.01 1.08 1.20 1.46 0.96 1.04 1.29 2.57 3.10 3.26 4.35 4.72 4.73 5.73 6.04 6.01 4.69 4.93 4.85 5.83 6.27 6.29 . . . Jul Aug Sep 1.26 1.43 1.61 2.25 2.43 2.58 4.25 4.43 4.58 1.57 1.68 1.86 1.36 1.50 1.68 3.05 2.88 2.83 4.50 4.28 4.13 5.82 5.65 5.46 4.71 4.52 4.40 6.06 5.87 5.75 . . . Oct Nov Dec 1.76 1.93 2.16 2.75 2.93 3.15 4.75 4.93 5.15 2.04 2.26 2.45 1.79 2.11 2.22 2.85 3.09 3.21 4.10 4.19 4.23 5.47 5.52 5.47 4.38 4.45 4.35 5.72 5.73 5.75 2005 Jan 2.28 3.25 5.25 2.61 2.37 3.39 4.22 5.36 4.24 5.71 2002 . . . 2003 . . . 2004 . . . *All values are given as a percent at an annual rate. Research Division Federal Reserve Bank of St. Louis 17 updated through 02/14/05 Monetary Trends M1 MZM M2 M3 Percent change at an annual rate 2000. 2001. 2002. 2003. 2004. 0.18 3.03 4.85 6.04 5.39 8.12 15.80 12.84 7.31 3.86 6.09 8.71 7.57 6.83 4.48 9.43 11.40 8.03 6.32 5.17 1 2 3 4 5.96 -0.91 1.86 6.13 11.10 5.42 7.31 9.90 7.24 2.99 7.44 8.67 6.64 3.41 6.04 9.27 1 2 3 4 7.95 8.45 6.86 2.44 7.70 5.00 10.33 -2.04 6.77 7.04 7.58 -0.45 6.55 4.88 7.58 -0.34 1 2 3 4 5.91 6.13 3.83 5.55 2.31 8.57 2.07 2.59 3.45 7.78 3.56 5.51 5.55 9.43 4.24 3.29 2003 Jan . Feb Mar . 4.46 14.35 2.42 2.10 5.80 1.07 6.84 7.40 3.28 2.49 5.09 2.38 . . . Apr May Jun 6.44 13.61 9.85 4.40 6.88 9.95 7.18 9.62 8.28 4.18 6.97 7.40 . . . Jul Aug Sep 3.47 8.76 0.32 18.38 5.60 -0.68 8.99 9.13 -3.56 12.69 4.29 -0.52 . . . Oct Nov Dec 0.86 1.38 7.15 -4.50 -3.63 -1.85 -1.58 -0.98 0.75 -0.57 -2.45 0.27 2004 Jan . Feb Mar . -2.64 16.52 12.15 2.39 5.93 9.08 2.51 7.65 7.58 8.01 8.66 10.29 . . . Apr May Jun 0.33 3.16 7.05 8.89 11.88 2.14 7.30 11.27 2.32 8.78 11.71 5.28 . . . Jul Aug Sep -6.38 16.20 4.05 -2.43 2.47 4.88 0.52 3.93 6.66 0.40 4.22 6.20 . . . Oct Nov Dec -0.14 13.37 -0.70 -0.31 4.26 3.44 4.71 6.86 4.29 0.63 2.96 5.17 2005 Jan -7.47 -1.10 2.48 5.25 2002 . . . 2003 . . . 2004 . . . 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 Statistical Supplement to the 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 Statistical Supplement to the 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 Statistical Supplement to the 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 testimony that accompanies the Monetary Policy Report to the Congress. Beginning February 2000, the FOMC began using the personal consumption expenditures (PCE) price index to report its inflation range; the FOMC then switched to the PCE chain-type price index excluding food and energy prices (“core”) beginning July 2004. Accordingly, neither are 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 19 Monetary Trends 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 Securities are yields on the most recently issued inflation-indexed securities of 10- and 30-year original maturities. Inflation-Indexed 10-Year Government Notes shows the yield of an inflation-indexed note that is scheduled to mature in approximately (but not greater than) 10 years. The current French note has a maturity date of 7/25/2013, the current U.K. note has a maturity date of 8/16/2013, and the current U.S. note has a maturity date of 1/15/2015. InflationIndexed Treasury Yield Spreads and Inflation-Indexed 10-Year Government Yield Spreads equal the difference between the yields on the most recently issued inflation-indexed securities and the unadjusted security yields of similar maturity. 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. 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. 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. Page 14: Investment Securities are all securities held by commercial banks in both investment and trading accounts. ____(1993). “Specification and Analysis of a Monetary Policy Rule for Japan,” Bank of Japan Monetary and Economic Studies, November, pp. 1-45. 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. 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. Sources Agence France Trésor: French note yields. Bank of Canada: Canadian note yields. Bank of England : U.K. note 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. 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 Economic Analysis : 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. 20 Research Division Federal Reserve Bank of St. Louis
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