Full text of Monetary Trends : November 2003
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MonetaryTrends November 2003 Monetary Policy in Jobless Recoveries T he relatively slow pace of economic growth during the current recovery—particularly the sluggish performance of labor markets—has inspired numerous comparisons to the “jobless” recovery that followed the 1990-91 recession. While there are some striking similarities between the two episodes, each recession is unique and one should not carry comparisons too far. Nevertheless, it is interesting to consider similarities and differences in the responses of monetary policy during the two recoveries. Based on the official dating by the National Bureau of Economic Research, both the 1990-91 and 2001 recessions lasted for eight months. Both recessions were relatively mild compared with previous economic downturns, and both were followed by recoveries that did not display the typical rapid bounce-back in growth and employment. Following the business cycle trough of March 1991, cumulative growth in private nonfarm payroll employment remained negative for 18 months. Similarly, cumulative employment growth during the 21 months since the November 2001 turning point has also been negative. By at least one measure, the stance of monetary policy during these recession/recovery periods has been similar as well. The chart shows a measure of the “real” federal funds rate—the spread between the federal funds rate target established by the Federal Open Market Committee (FOMC) and the inflation rate, measured here as the previous 12-month change in the core personal consumption expenditures (PCE) deflator. This measure shows that the FOMC progressively eased policy during both recessions. In the periods following these recessions, the real federal funds rate ultimately declined to below zero and remained near zero for several months. The chart also shows an important difference in the real funds rate behavior: During the most recent recession, the FOMC lowered the federal funds rate target more rapidly than it did in the previous recession. Between July 1990 and March 1991 the funds rate target was reduced eight times for a cumulative total of 225 basis points. A series of further small rate cuts lowered the funds rate an additional 2 percentage points by the end of 1991, bringing the real federal funds rate down to zero. Three more rate cuts followed in 1992, which maintained a real funds rate near zero as inflation declined. During the more recent recession, the FOMC also reduced the funds rate target eight times, but in larger increments. Rate cuts in March through November 2001 reduced the target by 350 basis points, bringing the real funds rate close to zero by the trough of the recession. Additional rate cuts in December 2001, November 2002, and June 2003 reduced the funds rate another percentage point. The timing and magnitude of policy changes during these two episodes are significant because monetary policy is thought to affect the economy with a lag. Ultimately, the sluggish recovery of the early 1990s gave way to the rapid expansion later in the decade, but it wasn’t until February 1994—nearly three years after the trough of the recession—that the expansion had picked up noticeable momentum and the FOMC began raising the funds rate target. Despite the lackluster performance of job growth, the recovery from the 2001 recession has already begun showing signs of picking up momentum. Many factors contribute to ongoing macroeconomic developments, but the Fed’s relatively rapid and forceful response to deteriorating economic conditions during the 2001 recession is one factor that might help make this jobless recovery shorter than the previous episode. —Michael R. Pakko Federal Funds Rate Target Less Core Inflation Percent 6 4 1991 Trough 2 0 2001 Trough –2 –20 –16 –12 –8 –4 0 4 8 12 16 Months from Trough Views expressed do not necessarily reflect official positions of the Federal Reserve System. Available on the web at research.stlouisfed.org 20 24 28 32 36 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 10/20/03 Monetary Trends Reserve Market Rates M2 and MZM Billions of dollars Percent 6650 7.00 Effective Federal Funds Rate Intended Federal Funds Rate 6.50 6400 6.00 6150 5.50 5900 5.00 4.50 5650 M2 4.00 5400 3.50 5150 3.00 4900 2.50 Primary Credit Rate Discount Rate 2.00 4650 1.50 MZM 4400 1.00 4150 0.50 2000 2000 2001 2001 2002 2002 2003 2003 2004 Adjusted Monetary Base 2000 2000 2001 2001 2002 2002 2003 2003 2004 Treasury Yield Curve Percent change at an annual rate Percent 50 6.0 40 5.5 5.0 30 Week Ending: 10/18/02 09/19/03 10/17/03 4.5 20 4.0 10 3.5 0 3.0 2.5 -10 2.0 -20 1.5 -30 1.0 -40 0.5 2000 2000 2001 2001 2002 2002 2003 2003 3m 1y 2y 3y 5y 7y 10y 2004 Total Bank Credit Interest Rates Aug 03 Sep 03 Federal Funds Rate Jul 03 1.01 1.03 1.01 Prime Rate 4.00 4.00 4.00 Primary Credit Rate 2.00 2.00 2.00 Conventional Mortgage Rate 5.63 6.26 Percent change at an annual rate 50 40 30 . Treasury Yields Treasury Yields: 20 10 0 . . 6.15 . . . 3-Month Constant Maturity 0.92 0.97 0.96 6-Month Constant Maturity 0.97 1.05 1.03 1-Year Constant Maturity 1.12 1.31 1.24 3-Year Constant Maturity 1.93 2.44 2.23 5-Year Constant Maturity 2.87 3.37 3.18 10-Year Constant Maturity 3.98 4.45 4.27 -10 2000 2000 2001 2001 2002 2002 2003 2003 2004 Research Division Federal Reserve Bank of St. Louis 3 updated through 10/20/03 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 10/20/03 Monetary Trends Adjusted Monetary Base Percent change from year ago 20 15 10 5 0 -5 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 98 1998 1999 99 00 2000 2001 01 2002 02 2003 Domestic Nonfinancial Debt Currency Held by the Nonbank Public Percent change from year ago Percent change from year ago 03 2004 15 15 10 Total 10 5 0 5 Federal -5 -10 0 1996 1996 1997 1998 1999 2000 2001 2002 2003 1997 1998 1999 2000 2001 2002 2003 2004 2000 2000 2001 2001 2002 2002 2003 Time Deposits Checkable and Savings Deposits Percent change from year ago Percent change from year ago 30 2003 2004 30 25 25 Large Denomination 20 20 15 15 10 10 5 5 0 0 -5 -5 Small Denomination -10 Savings -10 -15 Checkable -15 2000 2000 2001 2001 2002 2002 2003 2003 2004 Money Market Mutual Fund Shares 2000 2000 2001 2001 2002 2002 2003 2004 Repurchase Agreements and Eurodollars Percent change from year ago Billions of dollars 60 50 Institutional Funds 40 2003 Billions of dollars 550 400 500 350 450 300 30 Repos (left) 400 250 20 350 10 Retail Funds 200 Eurodollars (right) 300 0 -10 150 250 2000 2000 2001 2001 2002 2002 2003 2003 100 2000 2001 2002 2003 2004 Research Division Federal Reserve Bank of St. Louis 5 updated through 10/20/03 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 10/20/03 Monetary Trends Adjusted and Required Reserves Billions of dollars 120 100 Adjusted 80 60 Required 40 20 0 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 Total Borrowings, nsa Excess Reserves plus RCB Contracts Billions of dollars Billions of dollars 3.5 28 3.0 24 2.5 03 2004 20 2.0 16 1.5 12 1.0 8 0.5 0.0 4 1996 1996 1997 1998 1999 2000 2001 2002 2003 1997 1998 1999 2000 2001 2002 2003 2004 1996 1997 1998 1999 2000 2001 2002 2003 1996 1997 1998 1999 2000 2001 2002 2003 2004 Nonfinancial Commercial Paper Percent change from year ago 60 40 20 0 -20 -40 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 Consumer Credit Percent change from year ago 20 15 10 5 0 -5 -10 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 2004 Research Division Federal Reserve Bank of St. Louis 7 updated through 10/16/03 Monetary Trends Inflation and Inflation Expectations Percent 10 8 6 Federal Reserve Bank of Philadelphia Humphrey-Hawkins CPI Inflation Range 4 University of Michigan 2 CPI Inflation 0 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 The shaded region shows the Humphrey-Hawkins CPI inflation range. Beginning in January 2000, the Humphrey-Hawkins inflation range was reported using the PCE price index and therefore is not shown on this graph. See notes on page 19. Treasury Security Yield Spreads Yield to maturity 6 10-Year less 3-Month T-Bill 4 2 0 10-Year less 3-Year T-Bill 3-Year less 3-Month T-Bill -2 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 Real Interest Rates Percent, Real rate = Nominal rate less CPI inflation 8 6 1-Year Treasury Yield 4 2 Federal Funds Rate 0 -2 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 2004 Research Division 8 Federal Reserve Bank of St. Louis updated through 10/06/03 Monetary Trends Short-Term Interest Rates Percent 14 90-Day Commercial Paper 12 10 8 Prime Rate 6 4 3-Month Treasury Yield 2 0 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 02 2002 2003 03 2004 Long-Term Interest Rates Percent 13 Conventional Mortgage 11 9 7 Corporate Aaa 5 10-Year Treasury Yield 3 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 Long-Term Interest Rates Short-Term Interest Rates Percent Percent 9 2001 01 02 2002 2003 03 2004 9 8 8 90-Day Commercial Paper 7 Corporate Baa 7 6 5 6 3-Month Treasury Yield 4 5 3 10-Year Treasury Yield 2 4 1 3 0 2000 2000 2001 2001 2002 2002 2003 2003 2004 2000 2000 2001 2001 2002 2002 2003 2003 2004 FOMC Intended Federal Funds Rate, Discount Rate, and Primary Credit Rate Percent 12 10 Intended Federal Funds Rate 8 6 Discount Rate Primary Credit Rate 4 2 0 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 2004 Research Division Federal Reserve Bank of St. Louis 9 updated through 10/20/03 Monetary Trends Federal Funds Rate and Inflation Targets Percent 12 4% 3% 2% 1% 0% Target Inflation Rates 9 Actual 6 3 0 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 Calculated federal funds rate is based on Taylor’s rule. See notes on page 19. 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Components of Taylor’s Rule Actual and Potential Real GDP PCE Inflation and Projections Percent change from year ago Billions of chain-weighted 1996 dollars 10000 6 9500 5 Actual 9000 4 8500 3 Potential 8000 2 7500 1 7000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 The shaded region shows the range of projections published in the Monetary Policy Report to the Congress. Monetary Base Growth* and Inflation Targets Percent 12 Actual 9 6 3 Target Inflation Rates 0% 1% 2% 3% 4% 0 1994 94 95 1995 1996 96 97 1997 98 1998 99 1999 00 2000 2001 01 2002 02 2003 03 *Modified for the effects of sweeps programs on reserve demand. Calculated base growth is based on McCallum’s rule. Actual base growth is percent change from year ago. See notes on page 19. 04 Components of McCallum’s Rule Monetary Base Velocity Growth Real Output Growth Percent Percent 8 8 1-Year Moving Average 1-Year Moving Average 4 4 10-Year Moving Average 0 0 4-Year Moving Average -4 -8 -4 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 1994 04 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 04 Research Division 10 Federal Reserve Bank of St. Louis updated through 10/20/03 Monetary Trends Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent, daily data Percent 8 6 1.4 Week Ending: 10/18/02 09/19/03 10/17/03 1.3 Dec 2003 Nov 2003 4 || ||| 1.2 2 Oct 2003 0 2y 3y 5y 7y 10y 1.1 08/18 Rates on Selected Federal Funds Futures Contracts Percent, daily data Percent 1.2 09/08 09/15 09/22 09/29 10/06 10/13 10/20 10/17/2003 Nov 2003 1.1 || || || | 1.0 09/01 Rates on Federal Funds Futures on Selected Dates 1.1 Oct 2003 08/25 08/15/2003 Dec 2003 ||| 1.0 09/12/2003 0.9 0.9 08/18 08/25 09/01 09/08 09/15 09/22 09/29 10/06 10/13 10/20 Oct Dec Nov Jan Feb Mar Contract Month Inflation-Indexed Treasury Bonds Inflation-Indexed Treasury Yield Spreads Percent, weekly data Percent, weekly data 4 5 4.5 3 4 30-Year 3.5 2 30-Year 3 10-Year 2.5 10-Year 1 2 0 1.5 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Inflation-Indexed 30-Year Government Bonds Inflation-Indexed 10-Year Government Bonds Percent, weekly data Percent, weekly data 6 6 5 5 U.S. U.S. Canada 4 4 3 3 2 2 U.K. 1 1999 2000 2001 2002 2003 01/01/1999 01/01/2000 01/01/2001 01/01/2002 01/01/2003 01/01/2004 U.K. 1 1999 2000 2001 2002 2003 01/01/1999 01/01/2000 01/01/2001 01/01/2002 01/01/2003 01/01/2004 Research Division Federal Reserve Bank of St. Louis 11 updated through 10/20/03 Monetary Trends Velocity Nominal GDP/MZM, Nominal GDP/M2 (Ratio Scale) 3.00 2.75 MZM 2.50 2.25 M2 2.00 1.75 1.50 9497 86 9862 87 10227 88 10593 89 10958 90 11323 91 11688 92 12054 93 12419 94 12784 95 13149 96 13515 97 13880 98 14245 99 14610 00 14976 01 15341 02 15706 03 16071 Interest Rates Percent 10 8 3-Month T-Bill 6 4 M2 Own MZM Own 2 0 86 9862 87 10227 88 10593 89 10958 90 11323 91 11688 92 12054 93 12419 94 12784 95 13149 96 13515 97 13880 98 14245 99 14610 00 14976 01 15341 02 15706 MZM Velocity and Interest Rate Spread M2 Velocity and Interest Rate Spread Ratio Scale Ratio Scale 3.50 03 16071 2.25 Velocity = Nominal GDP / M2 Velocity = Nominal GDP / MZM 9497 3.00 2.50 2.00 2.00 1.75 1.50 1974Q1 to 1993Q4 1994Q1 to present 1974Q1 to 1993Q4 1994Q1 to present 1.25 1.50 0 1 2 3 4 5 6 7 8 9 10 11 Interest Rate Spread = 3-Month T-Bill less MZM Own Rate 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 Interest Rate Spread = 3-Month T-Bill less M2 Own Rate Research Division 12 Federal Reserve Bank of St. Louis updated through 10/20/03 Monetary Trends Gross Domestic Product Percent change from year ago 20 15 10 5 0 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 Dashed lines indicate 10-year moving averages. Real Gross Domestic Product Percent change from year ago 15 10 5 0 -5 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 Dashed lines indicate 10-year moving averages. Gross Domestic Product Price Index Percent change from year ago 20 15 10 5 0 1986 86 1987 87 1988 88 1989 89 1990 90 1991 91 1992 92 1993 93 1994 94 1995 95 1996 96 1997 97 1998 98 1999 99 2000 00 2001 01 2002 02 2003 03 2004 Dashed lines indicate 10-year moving averages. M2 Percent change from year ago 20 15 10 5 0 86 1986 87 1987 88 1988 89 1989 90 1990 91 1991 92 1992 93 1993 94 1994 95 1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 2004 Dashed lines indicate 10-year moving averages. Research Division Federal Reserve Bank of St. Louis 13 updated through 10/14/03 Monetary Trends Bank Credit Percent change from year ago 20 15 10 5 0 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Investment Securities in Bank Credit at Commercial Banks Percent change from year ago 25 20 15 10 5 0 -5 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Total Loans and Leases in Bank Credit at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Commercial and Industrial Loans at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 -10 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 Research Division 14 Federal Reserve Bank of St. Louis updated through 10/16/03 Monetary Trends Standard & Poor’s 500 1600 48 1400 42 1200 36 1000 30 Price/Earnings Ratio (right) 800 24 600 18 400 12 Composite Index (left) 200 6 0 0 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 Recent Inflation and Long-Term Interest Rates Consumer Price Inflation Rates Long-Term Government Bond Rates Percent change from year ago 2002Q4 2003Q1 2003Q2 2003Q3 Percent Jun03 Jul03 Aug03 Sep03 United States 2.25 2.87 2.17 2.22 3.33 3.98 4.45 4.27 Canada 3.79 4.47 2.81 . 4.37 4.78 4.96 4.64 France 2.14 2.38 1.92 . 3.93 4.10 4.32 . Germany 1.20 1.17 0.87 . 3.62 3.97 4.13 . Italy 2.77 2.72 2.70 2.75 4.13 4.29 4.31 . -0.40 -0.23 -0.24 . 0.49 0.92 0.83 1.10 2.56 3.07 3.01 . 4.11 4.40 4.58 4.68 Japan United Kingdom Inflation and Long-Term Interest Rate Differentials Percent Percent 3 3 Canada U.K. Canada 0 0 U.K. Japan Germany Germany -3 -3 Inflation differential = Foreign inflation less U.S. inflation Long-term rate differential = Foreign rate less U.S. rate -6 Japan -6 14610 2000 14976 2001 15341 2002 15706 2003 16071 14610 2000 14976 2001 15341 2002 15706 2003 16071 Research Division Federal Reserve Bank of St. Louis 15 updated through 10/20/03 Monetary Trends Money Stock Bank Adjusted M1 MZM M2 M3 Credit Monetary Base Reserves MSI M2 1998. 1079.870 3709.461 4207.774 5749.669 4324.465 525.184 84.060 241.553 1999. 1101.495 4170.041 4525.776 6252.403 4577.142 574.181 88.664 257.899 2000. 1103.401 4507.638 4801.216 6841.050 5025.759 607.106 84.511 272.523 2001. 1136.611 5219.148 5222.053 7621.164 5343.603 641.167 85.931 296.264 2002. 1190.219 5886.330 5619.615 8230.140 5592.542 697.071 87.924 319.383 2001 1 1100.135 4855.582 5032.979 7276.070 5270.444 619.676 82.207 285.337 . 2 1116.115 5107.405 5160.250 7543.173 5311.782 629.484 82.722 292.824 . 3 1162.814 5327.317 5291.714 7725.994 5361.309 651.930 90.906 300.515 . 4 1167.377 5586.289 5403.270 7939.418 5430.878 663.578 87.887 306.379 2002 1 1183.762 5724.200 5494.692 8055.189 5409.458 680.264 88.157 311.592 . 2 1181.589 5810.078 5546.486 8137.525 5479.838 692.937 86.979 315.246 . 3 1190.469 5944.931 5668.995 8283.101 5653.617 702.753 86.820 322.274 . 4 1205.056 6066.110 5768.287 8444.743 5827.254 712.330 89.741 328.421 2003 1 1227.801 6158.569 5859.882 8562.351 5946.114 726.820 90.930 334.331 . 2 1255.956 6257.192 5982.756 8697.202 6118.491 738.230 91.800 341.897 . 3 1283.995 6453.173 6111.944 8941.200 6192.670 744.013 94.530 349.763 Sep 1201.220 5452.848 5376.486 7834.870 5418.692 671.628 105.077 305.239 2001 . Oct 1163.909 5511.680 5362.390 7869.901 5413.799 663.798 91.551 304.243 . Nov 1165.335 5585.475 5402.792 7943.815 5445.913 661.381 86.229 306.405 . Dec 1172.887 5661.711 5444.629 8004.539 5432.921 665.556 85.880 308.489 2002 Jan 1179.038 5682.740 5468.738 8016.263 5406.840 673.713 87.296 310.009 . Feb 1185.171 5737.333 5507.159 8068.056 5414.494 681.914 89.238 312.222 . Mar 1187.077 5752.527 5508.180 8081.248 5407.039 685.165 87.936 312.545 . Apr 1172.605 5750.632 5494.803 8083.327 5432.359 689.008 88.352 312.465 . May 1183.278 5818.519 5557.289 8150.476 5481.201 692.736 86.588 315.719 . Jun 1188.883 5861.084 5587.366 8178.773 5525.955 697.068 85.998 317.553 . Jul 1195.728 5908.708 5635.199 8224.904 5578.790 701.032 86.100 320.051 . Aug 1184.451 5950.731 5673.074 8291.447 5661.002 702.878 86.382 322.459 . Sep 1191.228 5975.354 5698.711 8332.951 5721.059 704.350 87.978 324.312 . Oct 1202.609 5977.782 5736.585 8344.346 5756.122 710.664 89.827 326.553 . Nov 1202.180 6087.446 5776.528 8467.225 5834.719 712.472 89.818 328.851 . Dec 1210.378 6133.101 5791.748 8522.658 5890.920 713.853 89.579 329.860 2003 Jan 1212.991 6130.968 5820.530 8522.478 5884.742 719.528 89.511 331.941 . Feb 1233.421 6170.215 5873.451 8569.020 5961.624 728.657 91.909 335.088 . Mar 1236.990 6174.524 5885.664 8595.556 5991.977 732.276 91.371 335.964 . Apr 1237.372 6181.355 5908.497 8613.440 6026.459 736.488 92.367 337.795 . May 1258.304 6257.649 5996.161 8706.054 6133.558 738.668 91.471 342.475 . Jun 1272.191 6332.572 6043.611 8772.112 6195.456 739.535 91.562 345.420 . Jul 1278.050 6434.185 6092.748 8933.587 6203.578 741.244 93.478 348.562 . Aug 1285.855 6467.553 6133.707 8957.035 6187.448 745.276 95.369 350.953 . Sep 1288.081 6457.780 6109.378 8932.977 6186.985 745.520 94.744 349.774 *All values are given in billions of dollars. Research Division 16 Federal Reserve Bank of St. Louis updated through 10/20/03 Monetary Trends Federal Discount Primary Prime 3-mo Funds Rate Credit Rate Rate CDs Treasury Yields 3-mo 3-yr Corporate 10-yr Aaa Bonds S&L Aaa Bonds Conventional Mortgage 1998. 5.35 4.92 . 8.35 5.47 4.91 5.14 5.26 6.53 4.93 6.94 1999. 4.97 4.62 . 7.99 5.33 4.78 5.49 5.64 7.04 5.28 7.43 2000. 6.24 5.73 . 9.23 6.46 6.00 6.22 6.03 7.62 5.58 8.06 2001. 3.89 3.41 . 6.92 3.69 3.47 4.08 5.02 7.08 5.01 6.97 2002. 1.67 1.17 . 4.68 1.73 1.63 3.10 4.61 6.49 4.87 6.54 2001 1 5.59 5.11 . 8.62 5.26 4.95 4.64 5.05 7.08 5.03 7.01 . 2 4.33 3.83 . 7.34 4.10 3.75 4.43 5.27 7.22 5.11 7.13 . 3 3.50 3.06 . 6.57 3.34 3.24 3.93 4.98 7.11 4.95 6.97 . 4 2.13 1.64 . 5.16 2.06 1.94 3.33 4.77 6.92 4.97 6.78 2002 1 1.73 1.25 . 4.75 1.82 1.76 3.75 5.08 6.62 5.02 6.97 . 2 1.75 1.25 . 4.75 1.83 1.75 3.77 5.10 6.71 5.01 6.81 . 3 1.74 1.25 . 4.75 1.76 1.67 2.62 4.26 6.35 4.72 6.29 . 4 1.44 0.94 . 4.45 1.49 1.36 2.27 4.01 6.28 4.71 6.08 2003 1 1.25 . 2.25 4.25 1.26 1.18 2.07 3.92 6.00 4.60 5.83 . 2 1.25 . 2.23 4.24 1.17 1.06 1.77 3.62 5.31 4.28 5.51 . 3 1.02 . 2.00 4.00 1.07 0.95 2.20 4.23 5.70 4.68 6.01 Sep 3.07 2.77 . 6.28 2.87 2.69 3.45 4.73 7.17 4.93 6.82 2001 . 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 6.99 . Apr 1.75 1.25 . 4.75 1.87 1.75 4.01 5.21 6.76 5.09 . May 1.75 1.25 . 4.75 1.82 1.76 3.80 5.16 6.75 5.03 6.81 . Jun 1.75 1.25 . 4.75 1.81 1.73 3.49 4.93 6.63 4.92 6.65 . Jul 1.73 1.25 . 4.75 1.79 1.71 3.01 4.65 6.53 4.81 6.49 . Aug 1.74 1.25 . 4.75 1.73 1.65 2.52 4.26 6.37 4.78 6.29 . Sep 1.75 1.25 . 4.75 1.76 1.66 2.32 3.87 6.15 4.58 6.09 . Oct 1.75 1.25 . 4.75 1.73 1.61 2.25 3.94 6.32 4.66 6.11 . Nov 1.34 0.83 . 4.35 1.39 1.25 2.32 4.05 6.31 4.77 6.07 . Dec 1.24 0.75 . 4.25 1.34 1.21 2.23 4.03 6.21 4.70 6.05 2003 Jan 1.24 . . 4.25 1.29 1.19 2.18 4.05 6.17 4.72 5.92 . Feb 1.26 . 2.25 4.25 1.27 1.19 2.05 3.90 5.95 4.57 5.84 . Mar 1.25 . 2.25 4.25 1.23 1.15 1.98 3.81 5.89 4.51 5.75 . Apr 1.26 . 2.25 4.25 1.24 1.15 2.06 3.96 5.74 4.60 5.81 . May 1.26 . 2.25 4.25 1.22 1.09 1.75 3.57 5.22 4.16 5.48 . Jun 1.22 . 2.20 4.22 1.04 0.94 1.51 3.33 4.97 4.07 5.23 . Jul 1.01 . 2.00 4.00 1.05 0.92 1.93 3.98 5.49 4.59 5.63 . Aug 1.03 . 2.00 4.00 1.08 0.97 2.44 4.45 5.88 4.82 6.26 . Sep 1.01 . 2.00 4.00 1.08 0.96 2.23 4.27 5.72 4.63 6.15 *All values are given as a percent at an annual rate. Research Division Federal Reserve Bank of St. Louis 17 updated through 10/20/03 Monetary Trends M1 MZM M2 M3 Percent change at an annual rate 1998. 0.99 11.67 7.29 10.36 1999. 2.00 12.42 7.56 8.74 2000. 0.17 8.10 6.09 9.41 2001. 3.01 15.78 8.77 11.40 2002. 4.72 12.78 7.61 7.99 2001 1 2.71 18.62 10.65 13.24 . 2 5.81 20.75 10.11 14.68 . 3 16.74 17.22 10.19 9.69 . 4 1.57 19.44 8.43 11.05 2002 1 5.61 9.87 6.77 5.83 . 2 -0.73 6.00 3.77 4.09 . 3 3.01 9.28 8.84 7.16 . 4 4.90 8.15 7.01 7.81 2003 1 7.55 6.10 6.35 5.57 . 2 9.17 6.41 8.39 6.30 . 3 8.93 12.53 8.64 11.22 Sep 54.30 38.98 25.20 24.71 . Oct -37.27 12.95 -3.15 5.37 . Nov 1.47 16.07 9.04 11.27 . Dec 7.78 16.38 9.29 9.17 2001 2002 Jan 6.29 4.46 5.31 1.76 . Feb 6.24 11.53 8.43 7.75 . Mar 1.93 3.18 0.22 1.96 . Apr -14.63 -0.40 -2.91 0.31 . May 10.92 14.17 13.65 9.97 . Jun 5.68 8.78 6.49 4.17 . Jul 6.91 9.75 10.27 6.77 . Aug -11.32 8.53 8.07 9.71 . Sep 6.87 4.97 5.42 6.01 . Oct 11.46 0.49 7.98 1.64 . Nov -0.43 22.01 8.36 17.67 . Dec 8.18 9.00 3.16 7.86 2003 Jan 2.59 -0.42 5.96 -0.03 . Feb 20.21 7.68 10.91 6.55 . Mar 3.47 0.84 2.50 3.72 . Apr 0.37 1.33 4.66 2.50 . May 20.30 14.81 17.80 12.90 . Jun 13.24 14.37 9.50 9.11 . Jul 5.53 19.26 9.76 22.09 . Aug 7.33 6.22 8.07 3.15 . Sep 2.08 -1.81 -4.76 -3.22 Research Division 18 Federal Reserve Bank of St. Louis Monetary Trends Definitions M1: The sum of currency held outside the vaults of depository institutions, Federal Reserve Banks, and the U.S. Treasury; travelers checks; and demand and other checkable deposits issued by financial institutions (except demand deposits due to the Treasury and depository institutions), minus cash items in process of collection and Federal Reserve float. MZM: M2 minus small-denomination time deposits, plus institutional money market mutual funds. The label MZM was coined by William Poole (1991) for this aggregate, proposed earlier by Motley (1988). M2: M1 plus savings deposits (including money market deposit accounts) and small-denomination (less than $100,000) time deposits issued by financial institutions; and shares in retail money market mutual funds (funds with initial investments of less than $50,000), net of retirement accounts. M3: M2 plus large-denomination ($100,000 or more) time deposits; repurchase agreements issued by depository institutions; Eurodollar deposits, specifically, dollar-denominated deposits due to nonbank U.S. addresses held at foreign offices of U.S. banks worldwide and all banking offices in Canada and the United Kingdom; and institutional money market mutual funds (funds with initial investments of $50,000 or more). Bank Credit: All loans, leases, and securities held by commercial banks. Domestic Nonfinancial Debt: Total credit market liabilities of the U.S. Treasury, federally sponsored agencies, state and local governments, households, and nonfinancial firms. End-of-period basis. Adjusted Monetary Base: The sum of currency in circulation outside Federal Reserve Banks and the U.S. Treasury, deposits of depository financial institutions at Federal Reserve Banks, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. This series is a spliced chain index; see Anderson and Rasche (1996a, 1996b, 2001). Adjusted Reserves: The sum of vault cash and Federal Reserve Bank deposits held by depository institutions and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. This series, a spliced chain index, is numerically larger than the Board of Governors’ measure, which excludes vault cash not used to satisfy statutory reserve requirements and Federal Reserve Bank deposits used to satisfy required clearing balance contracts; see Anderson and Rasche (1996a, 2001). Monetary Services Index: An index that measures the flow of monetary services received by households and firms from their holdings of liquid assets; see Anderson, Jones, and Nesmith (1997). Indexes are shown for the assets included in M2; additional data are available at research.stlouisfed.org/msi/index.html. Note: M1, M2, M3, Bank Credit, and Domestic Nonfinancial Debt are constructed and published by the Board of Governors of the Federal Reserve System. For details, see Federal Reserve Bulletin, tables 1.21 and 1.26. MZM, Adjusted Monetary Base, Adjusted Reserves, and Monetary Services Index are constructed and published by the Research Division of the Federal Reserve Bank of St. Louis. Notes Page 3: MZM, or “Money, Zero Maturity,” includes the zero maturity, or immediately available, components of M3. MZM equals M2 minus smalldenomination time deposits, plus institutional money market mutual funds (that is, the money market mutual funds included in M3 but excluded from M2). Readers are cautioned that since early 1994 the level and growth of M1 have been depressed by retail sweep programs that reclassify transactions deposits (demand deposits and other checkable deposits) as savings deposits overnight, thereby reducing banks’ required reserves; see Anderson and Rasche (2001) and research.stlouisfed.org/aggreg/swdata.html. Primary Credit Rate, Research Division Federal Reserve Bank of St. Louis Discount Rate, and Intended Federal Funds Rate shown in the chart Reserve Market Rates are plotted as of the date of the change, while the Effective Federal Funds Rate is plotted as of the end of the month. Interest rates in the table are monthly averages from the Board of Governors H.15 Statistical Release. The Treasury Yield Curve shows constant maturity yields calculated by the U.S. Treasury Department for securities with 3 months and 1, 2, 3, 5, 7, and 10 years to maturity. Daily data and descriptions are available at research.stlouisfed.org/ fred/data/wkly.html. See also Federal Reserve Bulletin, table 1.35. The 30-year constant maturity series was discontinued by the Treasury Department as of February 18, 2002. Page 5: Checkable Deposits is the sum of demand and other checkable deposits. Savings Deposits is the sum of money market deposit accounts and passbook and statement savings. Time Deposits have a minimum initial maturity of 7 days. Large Time Deposits are deposits of $100,000 or more. Retail and Institutional Money Market Mutual Funds are as included in M2 and the non-M2 component of M3, respectively. Page 7: Excess Reserves plus RCB (Required Clearing Balance) Contracts equals the amount of deposits at Federal Reserve Banks held by depository institutions but not applied to satisfy statutory reserve requirements. (This measure excludes the vault cash held by depository institutions that is not applied to satisfy statutory reserve requirements.) Consumer Credit includes most short- and intermediate-term credit extended to individuals. See Federal Reserve Bulletin, table 1.55. Page 8: Inflation Expectations measures include the quarterly Federal Reserve Bank of Philadelphia Survey of Professional Forecasters, the monthly University of Michigan Survey Research Center’s Surveys of Consumers, and the annual Federal Open Market Committee (FOMC) range as reported to the Congress in the February Humphrey-Hawkins Act testimony each year. Beginning February 2000, the FOMC began using the personal consumption expenditures (PCE) price index to report its inflation range and therefore is not shown on this graph. CPI Inflation is the percentage change from a year ago in the consumer price index for all urban consumers. Real Interest Rates are ex post measures, equal to nominal rates minus CPI inflation. Page 9: FOMC Intended Federal Funds Rate is the level (or midpoint of the range, if applicable) of the federal funds rate that the staff of the FOMC expected to be consistent with the desired degree of pressure on bank reserve positions. In recent years, the FOMC has set an explicit target for the federal funds rate. Page 10: Federal Funds Rate and Inflation Targets shows the observed federal funds rate, quarterly, and the level of the funds rate implied by applying Taylor’s (1993) equation ft*= 2.5 + π t –1 + (π t –1 – π* )/2 + 100 × (yt –1 – yt –1P )/2 to five alternative target inflation rates, π* = 0, 1, 2, 3, 4 percent, where ft* is the implied federal funds rate, π t –1 is the previous period’s inflation rate (PCE) measured on a year-over-year basis, yt –1 is the log of the previous period’s level of real gross domestic product (GDP), and yt –1P is the log of an estimate of the previous period’s level of potential output. Potential Real GDP is as estimated by the Congressional Budget Office. Monetary Base Growth and Inflation Targets shows the quarterly growth of the adjusted monetary base (modified to include an estimate of the effect of sweep programs) implied by applying McCallum’s (1988, 1993) equation ∆MBt* = π* + (10-year moving average growth of real GDP) – (4-year moving average of base velocity growth) to five alternative target inflation rates, π* = 0, 1, 2, 3, 4 percent, where ∆MBt* is the implied growth rate of the adjusted monetary base. The 10-year moving average growth of real GDP for a quarter t is calculated as the average quarterly growth during the previous 40 quarters, at an annual rate, by the formula ((yt – yt –40 )/40) × 4 × 100, where yt is the log of real GDP. The fouryear moving average of base velocity growth is calculated similarly. To adjust the monetary base for the effect of retail-deposit sweep programs, we add to the monetary base an amount equal to 10 percent of the total amount swept, 19 Monetary Trends as estimated by the Federal Reserve Board staff. These estimates are imprecise, at best. Sweep program data are available at research.stlouisfed.org/aggreg/swdata.html. Page 11: Implied One-Year Forward Rates are calculated by this Bank from Treasury constant maturity yields. Yields to maturity, R(m), for securities with m = 1,... , 10 years to maturity are obtained by linear interpolation between reported yields. These yields are smoothed by fitting the regression suggested by Nelson and Siegel (1987), R(m) = a0 + (a1 + a2 )(1 – e–m/50 )/(m/50) – a2 × e–m/50, and forward rates are calculated from these smoothed yields using equation (a) in table 13.1 of Shiller (1990), f(m) = [D(m)R(m) – D(m–1)] / [D(m) – D(m–1)], 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. Federal Reserve Bank of Philadelphia Survey of Professional Forecasters inflation expectations. where duration is approximated as D(m) = (1 – e –R(m) × m)/R(m). These rates are linear approximations to the true instantaneous forward rates; see Shiller (1990). For a discussion of the use of forward rates as indicators of inflation expectations, see Sharpe (1997). Rates on 3-Month Eurodollar Futures and Rates on Selected Federal Funds Futures Contracts trace through time the yield on three specific contracts. Rates on Federal Funds Futures on Selected Dates displays a single day’s snapshot of yields for contracts expiring in the months shown on the horizontal axis. Inflation-Indexed Treasury Bonds are yields on the most recently issued inflation-indexed securities of 10- and 30-year original maturities. Inflation-Indexed Treasury Yield Spreads equal, for 10- and 30-year maturities, the difference between the yields on the most recently issued inflation-indexed securities and the unadjusted bond yields of similar maturity. Inflation-Indexed 30-Year Government Bonds shows the yield of an inflation-indexed bond that is scheduled to mature in approximately (but not greater than) 30 years. The current bond for Canada has a maturity date of 12/01/2031, the current U.K. bond has a maturity date of 7/22/2030, and the current U.S. bond has a maturity date of 4/15/2032. Inflation-Indexed 10-Year Government Bonds shows the yield of an inflationindexed bond that is scheduled to mature in approximately (but not greater than) 10 years. The current U.K. bond has a maturity date of 8/16/2013 and the current U.S. bond has a maturity date of 7/15/2013. Federal Reserve Bank of St. Louis Adjusted monetary base and adjusted reserves, monetary services index, MZM own rate, one-year forward rates. Page 12: Velocity (for MZM and M2) equals the ratio of GDP, measured in current dollars, to the level of the monetary aggregate. MZM and M2 Own Rates are weighted averages of the rates received by households and firms on the assets included in the aggregates. Prior to 1982, the 3-month T-bill rates are secondary market yields. From 1982 forward, rates are 3-month constant maturity yields. ____ and ____(2001). “Retail Sweep Programs and Bank Reserves, 1994-1999,” Federal Reserve Bank of St. Louis Review, January/February, pp. 51-72. Page 13: Real Gross Domestic Product is GDP as measured in chained 1996 dollars. The Gross Domestic Product Price Index is the implicit price deflator for GDP, which is defined by the Bureau of Economic Analysis, U.S. Department of Commerce, as the ratio of GDP measured in current dollars to GDP measured in chained 1996 dollars. McCallum, Bennett T. (1988). “Robustness Properties of a Monetary Policy Rule,” Carnegie-Rochester Conference Series on Public Policy, vol. 29, pp. 173-204. Page 14: Investment Securities are all securities held by commercial banks in both investment and trading accounts. Motley, Brian (1988). “Should M2 Be Redefined?” Federal Reserve Bank of San Francisco Economic Review, Winter, pp. 33-51. Page 17: Treasury Yields are Treasury constant maturities as reported in the Board of Governors of the Federal Reserve System’s H.15 release. Nelson, Charles R. and Andrew F. Siegel (1987). “Parsimonious Modeling of Yield Curves,” Journal of Business, October, pp. 473-89. Sources Bank of Canada Canadian inflation-linked bond yields. Poole, William (1991). Statement before the Subcommittee on Domestic Monetary Policy of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, November 6, 1991. Government Printing Office, Serial No. 102-82. Bank of England U.K. inflation-linked bond yields. Sharpe, William F. (1997). Macro-Investment Analysis, on-line textbook available at www.stanford.edu/~wfsharpe/mia/mia.htm. Board of Governors of the Federal Reserve System Monetary aggregates and components: H.6 release. Bank credit and components: H.8 release. Consumer credit: G.19 release. Required reserves, excess reserves, clearing balance contracts, and discount window borrowing: H.4.1 and H.3 releases. Interest rates: H.15 release. Nonfinancial commercial paper: Board of Governors website. Nonfinancial debt: Z.1 release. M2 own rate. Shiller, Robert (1990). “The Term Structure of Interest Rates,” Handbook of Monetary Economics, vol. 1, B. Friedman and F. Hahn, eds., pp. 627-722. 20 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. ____ , Barry E. Jones and Travis D. Nesmith (1997). “Special Report: The Monetary Services Indexes Project of the Federal Reserve Bank of St. Louis,” Federal Reserve Bank of St. Louis Review, January/February, 79(1), pp. 31-82. ____(1993). “Specification and Analysis of a Monetary Policy Rule for Japan,” Bank of Japan Monetary and Economic Studies, November, pp. 1-45. Taylor, John B. (1993). “Discretion versus Policy Rules in Practice,” CarnegieRochester Conference Series on Public Policy, vol. 39, pp. 195-214. Note: Articles from this Bank’s Review are available on the Internet at research.stlouisfed.org/publications/review/. Research Division Federal Reserve Bank of St. Louis
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