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FEDERAL RESERVE B A N K
AUGUST 1969
OF ST. L O U IS

Inflation Continues....................................... 2
The Influence of Economic Activity
on the M oney Stock —
Comments on the “St. Louis Position”..... 9
R e p l y ................................................ 15
LITTLE R O C K

Additional Empirical Evidence on the
Reverse-Causation Argum ent................ 19
M e a t Prices................................................ 24

V o l. 5 1 , N o . 8

Inflation Continues
I

NFLATION has been a major concern of public
policy for well over two years. In the first half of
1967 the Administration suggested passage of an in
come surtax to curb mounting inflationary pressures,
and as early as December 1967 monetary authorities
indicated a desire to restrain the overly exuberant
economy. Yet, effective restrictive action was long
delayed, and the persisting inflation has actually ac
celerated. Consumer prices have risen at more than
a 6 per cent annual rate since last December, up
from the 1968 rate of 4.7 per cent. This compares
with a 3 per cent average annual increase in 1966
and 1967, and a 1.4 per cent trend rate from 1957
to 1965.
This article attempts to provide some insight into
the problem of inflation by focusing on a few key
questions. What is inflation? How does inflation affect
the economy? What has caused the inflation since
1965? How can it be combated? What has been
done in recent months to halt inflation? And, when
may we expect moderation of inflation to be achieved?

W hat is Inflation?
Inflation is a rise in the general level of prices, or
stated differently, a decline in the overall purchasing
power of the dollar. Inflation does not necessarily in
volve an increase in the price of every good or even
of every group of goods. Increases and decreases in
prices of particular goods or services, which reflect
changes in supplies or demands, are essential for the
smooth operation of an efficient economy. Rising prices
in one sector may be accompanied by declining prices
elsewhere, and the changes in relative prices give
incentive for transferring resources to areas where
demands are greatest.
How then can we know how much inflation has
occurred? The rate of inflation is difficult to measure
accurately since there are myriad prices, some of
which are rising and others falling, and since there
are continuous changes in the quality and composi
tion of goods and services offered for sale. The
standard measures of the rate of inflation are de
rived from changes of prices of fixed “baskets” of
goods and services. This assumes that changes in
quality, tastes, and relative prices are either insig
nificant, or that adequate adjustments can be made
for them. Frequently used measures include the
Page 2

Prices
R a tio S cale

R a tio S cale

1957-59=100
135

130

■

125

120
/
+

115

115
+3J

110
+i

110

S '

Consum ir

+22

105

olesale In lis lr iil
100

100
Jon 61

lor. '65
*

95
1961

1962

1963

1964

1965

Aug.‘6 7

♦
1966

*
1967

June 69
♦

1968

1969

Source: U.S. D e p a rtm e n t o f Labor
Percentage! are a n n u a l rates o f cha ng e b etw een periods indicated.T hey a re pre sen ted to a id in
com paring m ost recent developm ents w ith p a st "tre n d s."
Latest d a ta p lo tte d: June

Consumer Price Index, the Wholesale Price Index,
and the Implicit Price Deflator.
The Consumer Price Index, which is compiled by
the Bureau of Labor Statistics, is a measure of changes
in prices of selected goods and services purchased
by urban wage earners and clerical workers. The
index covers the prices of most things people buy —
food, clothing, automobiles, homes, furnishings, drugs,
doctor expenses, repair costs, transportation fees, and
others.
The Wholesale Price Index, also compiled by the
BLS, is a measure of the composite price movements
in primary markets. The index is based on price
quotations for approximately 2,300 commodities se
lected to represent all commodities sold in primary
markets in the United States.
The Implicit Price Deflator is computed by the De
partment of Commerce as a part of the national in
come statistics. It is gross national product in current
dollars divided by gross national product in 1958
prices and thereby measures the change in prices of
all goods and services weighted by amount spent on
each iiem. The deflator is available quarterly, and
the consumer and wholesale measures are available
monthly.

FEDERAL RESERVE BANK OF ST. LOUIS

Effects of Inflation
Inflation in the American economy causes redistribu
tions of wealth and income and creates inefficiencies,
injustices, and uncertainties. Inflation has different
effects on the economy and on individuals, depend
ing on the extent to which it has been anticipated
and the extent to which these anticipations have
been acted upon. Unexpected inflation causes a re
distribution of wealth from those who have extended
credit to those who have borrowed. For a loan at
5 per cent interest for a year when prices rise 6
per cent, the lender receives a net real yield of
minus one per cent, since he is repaid with dollars
that will buy fewer goods than when he made the
loan.
If the degree of inflation were exactly anticipated
and provided for by everyone, there would be no re
distribution of wealth or income, since adjustments
for the anticipated rate of price level increases would
be built into contracts. If both the borrower and
lender anticipated the 6 per cent inflation in the
previous example, and the funds were worth a real
net 5 per cent to the borrower, the contract would
have been made for an 11 per cent nominal rate of
interest.1
Of course, there is much uncertainty about the
course of future prices, and all people are not capable
of making contracts against such contingencies, es
pecially when the rate of inflation varies. Returns on
money holdings (since money is non-interest bear
ing) cannot be adjusted for reduced purchasing
power. Many long-term contracts such as mortgage
loans are already in existence, and cannot be changed
until they mature. Others cannot be modified by the
participants; changes in Social Security benefits, for
example, are at the discretion of the Government.
There is evidence that adjustments to the present
rate of inflation have not been complete. Many long
term loans, pensions, and annuities are returning the
lender less purchasing power than he had at the time
of the agreement. Even though growth in output per
man hour has probably slowed only slightly from its
trend of 3 per cent or more per year, hourly wages
of nonagricultural workers rose 6 per cent in the past
twelve months, while consumer prices went up 5.5
per cent. By comparison, in the previous year wages
rose 6.4 per cent and prices 4.2 per cent.
1Income tax considerations would make the actual rate higher,
since the borrower is able to deduct from his income the
amount of interest paid, and the lender must include as
income the greater amount of interest received.

AUGUST 1969

One adjustment to expected inflation is higher in
terest rates. An adequate adjustment in rates is im
possible in some sectors, however, since it would
conflict with legal ceilings. This is generally most
harmful to small borrowers and savers who rely prin
cipally on the regulated financial institutions, and
are most hindered by state usury laws. For example,
it has been impossible for small consumers even
to maintain the purchasing power of their savings
accounts in banks. The legal maximum on these
accounts is 4 per cent, but consumer prices have
gone up at a 6 per cent rate since December. More
over, consumers must pay income taxes on these
“earnings.” Those who deal in larger amounts are
able to borrow or lend desired funds with fewer
restrictions.
Inflation in conjunction with a progressive tax sys
tem contributes to an expansion of the Federal Gov
ernment. Rising price levels raise nominal incomes
and move taxpayers into higher tax brackets. As a
result the Government receives a greater percentage
of total real, as well as nominal, income. On the other
hand, local governments, which rely heavily on prop
erty taxes for revenue, usually suffer a decline in
real income during periods of inflation, since assessed
valuations are relatively fixed.
Inflation also affects international payments bal
ances. Higher interest rates in this country than in
others tend to cause a surplus in this nation’s capital
account as long as there is no widespread anticipa
tion of a change in exchange rates. Higher prices in
this country adversely affect our trade balance.
Inflation greatly increases incentives for economiz
ing cash balances. With rapid price increases it is
advantageous for individuals and businesses to spend
more effort in keeping money balances at a minimum.
In theory, only if the rate of inflation were stabi
lized, with all the public fully anticipating it and
acting upon the anticipations intelligently and cost
lessly, would the rate of inflation be immaterial. But,
under present conditions of uncertainty, nonuniform
expectations, and lack of flexibility, inflation is highly
undesirable, and it is the stated policy of the Gov
ernment to eliminate it.

W hat Causes Inflation?
Inflation results mainly from a greater dollar de
mand for goods and services than the economy is able
to produce at existing prices. At the onset of a period
Page 3

AUGUST 1969

FEDERAL RESERVE BANK OF ST. LOUIS

of rapid spending growth, real product and em
ployment may increase rapidly for a time and prices
relatively little. But, as employment of resources ap
proaches capacity and bottlenecks appear, price in
creases accelerate and the growth rate in real output
moderates.
From 1961 to 1964 the U.S. economy was recover
ing from a situation of under-utilization of resources.
Real product grew at a 5.4 per cent annual rate, well
in excess of the trend growth rate of production, and
prices increased at a 1.3 per cent rate. But since
1964, production has been at or near capacity most
of the time, and total spending has continued to
grow at rates about twice that of production. As a

Demand and Production
R a tio S cale
B illio n * n f r v "

R a tio S cale
o f D o lla rs

Q u a rte rly T otals a t A n nu al Rates

950
925.1

900
850
800

1961

1962

1963

1964

1965

1966

1967

1968

1969

Q GNP in current d o lla rs .
Source: U.S. D epartm ent o f Commerce
[2 GNP in 1958 do llars.
Percentages a re annual rates o f change betw een periods indicated. They are presented to a id in
com p aring most recent developm ents w ith p a st " tre n d s ."
Latest d a ta p lo tte d: 2nd q u arte r p re lim ina ry

result, prices have risen rapidly. During the past
year the GNP price deflator has gone up at a 4.5
per cent rate, and real product has grown at about
a 3 per cent rate.

Possible Causes of Recent Inflation
A major disagreement about inflation centers on its
causes and cures. Three main schools of thought may
be distinguished: fiscal, monetary, and institutional.

The Fiscal View
Some observers ascribe the inflation since 1965
chiefly to the course of Federal spending and taxa
tion. One analytical measure of the thrust of fiscal
actions is an estimate of the national income accounts

Page 4

Federal Budget Influence*
S tim u lus o r R e s tra in t
.....

, _

B ^m o n s o f D o ll a r s

10
0

Q u a rte rly Totals at Annual Rates
Seasonally A djusted

r*
rj N

, _

B illio n s o f D o ll a r s

.
x'

TIMUIUS

i RE5STRAINT

-10

-20

1957195819591960 19611962196319641965 19661967196819691970 1971
•The H igh-Employment Budget, first published by (he C ouncil o f Economic A dvisers.
Source: Federal Reserve Bank of St. Louis
la te s t d ata plo tte d: 2nd quarter prelim inary; last h a lf 1969 and
first half 1970 estimated by this bank

budget which would prevail at a constant rate of re
source use, the so-called “high-employment” budget.
By eliminating the effect of changing levels of eco
nomic activity on Government receipts and expendi
tures, the high-employment budget is believed to
indicate the impact of changes in tax laws and in legal
provisions for expenditures.12 A surplus of receipts
over expenditures is presumed to be indicative of
Governmental restraint on total spending, and, con
versely, greater expenditures than receipts imply Gov
ernmental stimulus to total spending.
The high-employment budget surplus declined
from an annual rate of $12 billion in 1960-63 to about
balance in the last half of 1965, as taxes were re
duced and Government spending rose rapidly. The
high-employment budget then moved to a deficit of
more than a $12 billion annual rate from early 1967
to mid-1968.
Government expenditures taken alone are another
possible indicator of the fiscal impact on the economy,
and have been used to explain the recent inflation.
The expansion of the Vietnam conflict, together with
rapid growth of non-defense expenditures, resulted
in rapid acceleration of total Government outlays.
Federal expenditures rose at a 15 per cent annual
rate from mid-1965 to mid-1968, after rising at a 6
per cent rate from 1957 to 1965.
Fiscal views of the cause of inflation imply that if
these expansionary developments had not taken place,
the excessive growth of total spending might have
been avoided, or at least limited. These views were
the basis for the long-debated proposals for a tax
increase and/or Government expenditures restraint,
2See “Estimates of the High-Employment Budget: 1947-1967”,
this Review, June 1967.

AUGUST 1969

FEDERAL RESERVE BANK OF ST. LOUIS

which culminated in the 10 per cent surtax in mid1968 and some cuts in proposed spending. Passage
of the tax bill resulted in moving the high-employment budget to a surplus of about an $8 billion sea
sonally adjusted annual rate in the first half of 1969.
Government expenditure growth also slowed. Expen
ditures increased 6 per cent in the last twelve months,
after growing at the 15 per cent rate in the preceding
three years.
A review of economic developments during recent
years raises some question as to the influence of fiscal
actions on total spending. In the 1961-63 period the
country experienced rapid growth of total spending,
real product, and employment, though the high-employment surplus was large and the rise in Govern
ment spending was not exceptionally rapid. In early
1967 growth of total private and Government spend
ing decelerated markedly, though the high-employment deficit and Government outlays increased rap
idly from mid-1966 to mid-1967. Again, the substan
tial tightening of the budget after June 1968 appears
to have exercised little observable restraint on spend
ing. Total spending on goods and services has grown
7.7 per cent in the past year, similar to the 8.3 per
cent rate in the previous three years.

The Monetary View
Monetary developments provide an alternative or
supplementary explanation of changes in total spend
ing and of inflation. While specialists differ on how
to measure monetary actions, we may roughly dis
tinguish two main current views on how monetary
developments are measured: money market condi
tions and monetary aggregates.
The course of the money stock, the most frequently
used monetary aggregate, may be viewed as explain
ing in large measure the general course of total spend
ing. The acceleration of money growth from the 195361 average annual rate of 1.4 per cent to a 3 per
cent rate from 1961 to early 1965 was accompanied
by recovery and expansion in the early Sixties. From
the spring of 1965 to the spring of 1966 money rose
6 per cent, and both spending and inflationary pres
sures accelerated. The nine-month pause of monetary
growth in 1966 was followed by a deceleration of
spending growth in early 1967. Resumption of rapid
growth of money in early 1967 appears to be related
to the acceleration of total spending growth and of
inflation since mid-1967.3
3These relations have been demonstrated with greater statis
tical precision by “Monetary and Fiscal Actions: A Test of
Their Relative Importance in Economic Stabilization,” this
Review, November 1968.

Many analysts feel that money market conditions,
measured possibly by interest rates, are a more re
liable indicator of the monetary authorities’ impact
on the economy. According to this view, monetary
restraint is indicated by high or rising interest rates,
and expansive policy is denoted by low or declin
ing interest rates. However, the record offers little
evidence of the reliability of interest rates as an
indicator of monetary influences.4 Interest rates are
determined, as are other prices, by demand and sup
ply. The Federal Reserve can influence the price
charged and paid for loan funds in the short run by
influencing the supply of credit, but it can do little,
if anything, to influence the demand for credit within
a short period. On the other hand, in the longer run
the monetary authority affects interest rates impor
tantly by its influence on the demand for credit.
Although the high interest rates of 1968 indicated
tight money market conditions, they did not indicate
restrictive monetary actions. Growth of Federal Re
serve credit and the monetary base accelerated dur
ing 1968, and inflationary pressures intensified. An
interpretation consistent with both Federal Reserve
actions and economic developments concludes that
the high interest rates were the result of increased
demand for loan funds which, in turn, was stimu
lated by an earlier rapid monetary expansion.

The Institutional View
A third view, which emphasizes imperfections in
the economy, feels inflation is caused by the sellers
of goods and services, including labor, who are con
tinually trying to get a larger share of overall revenue.
But continued cost-push inflation, while maintaining
high employment, is possible only if the Government
validates the attempts by sellers to get higher prices
by pursuing an inflationary policy.
Cost-push inflation is usually a delayed response to
an earlier excessive demand. Cost-push forces are
usually most intense in periods following a rapid rise
in total spending and the accompanying “demandpull” price increases. At these times there are usually
inflationary anticipations and inequities caused by
lags in adjustments of some wages and other prices.
Those emphasizing cost-push as the chief cause of
inflation are more willing than others to accept the
inefficiencies of wage and price controls to moderate
inflationary excesses. Such controls are difficult to ad
minister, cause inequities, misallocate resources, im
pinge on freedom, and reduce the flexibility needed
to reach equilibrium.
4See “Interest Rates, 1945-1965”, this Review, October 1965.
Page 5

AUGUST 1969

FEDERAL RESERVE BANK OF ST. LOUIS

cent in July, and rates on highest-grade corporate
bonds have gone up from 6.45 per cent to 7.08 per
cent.
Growth of monetary aggregates has also slowed.
Money stock has increased at a 2.2 per cent annual
rate since December 1968, after rising at a 6.5 per cent
rate in the two previous years; the demand deposit
component has risen at a 1.0 per cent rate, compared
with a 6.4 per cent rate in the earlier period; bank
credit has grown at a 3.6 per cent rate, down from an
11.4 per cent rate, and money plus time deposits has
decreased at a 2.6 per cent rate, against an earlier 10
per cent rate of increase.

In recent months, both fiscal and monetary actions
have become more restrictive. Efforts to obtain the
renewal of the surtax and cancellation of tax invest
ment credit represent attempts to maintain the fiscal
stance. But if primary reliance were to be placed
upon fiscal measures to restrain total spending, it
might be held that the steps which have been taken
in the past year have probably not been of an ade
quate magnitude. The annual rate of surplus of the
high-employment budget in the first half of 1969, of
$8 billion, compares with an average of $12 billion in
the 1960-63 period when the economy recovered from
recession. In order for the current budgetary surplus
to stand in the same relation to total spending that
it did in 1961-63, it would need to be at a $20 billion
annual rate rather than the current $8 billion rate.
And, if the budget influence were thought of in
terms of movement rather than the level of highemployment surplus or deficit, it may be observed
that little change is currently planned from second
quarter of 1969 through the first half of 1970. By con
ventional interpretation of the influence of the budget
on growth of total spending, the current situation may
be interpreted as about “neutral” rather than either
expansive or contractive.
Monetary policy has been much less stimulative
since last December relative to the preceding two
years, no matter what indicator is examined. Both
short- and long-term market interest rates have risen
sharply. Yields on three month Treasury bills have
risen from 5.94 per cent last December to 6.98 per

Page 6

It might be noted, however, that the degree of
monetary restraint in the past seven months, as a
whole, may have been less than it has been in some
other comparable periods in recent history. The re
cent seven month increase of money at a 2.2 per
cent rate, down from an earlier 6.5 per cent rate,
compares with a nine month period of no change in
1966 following a 6 per cent rise in the previous
year. In 1962, money was about unchanged for seven
months, and in 1959-60, when it might be concluded
that restraint became too great, money declined 2.3
per cent in a twelve month period.
In the past three months, however, strategic mon
etary magnitudes have declined or their rate of
growth has sharply decelerated. Total member bank
reserves have fallen from about $27.8 billion in May
and early June to $26.8 billion in the last four
weeks. These reserves had shown little net change
M o n e y Stock
Ratio S c a le
Billions o f D o lla rs

210

S e a s o n a lly A d ju ste d

-------------.210

Dec. 6 8

Apr. 66

July'69

i itl 1 1 111 Iti 11

11 Iti 1111111 Hi
1 966

Ratio Scale
Billions o f D olla rs

M o n t h ly A v e r a g e s o f D a i l y F i g u r e s

196 7

1 968

1969

P e r c e n t a g e s a r e a n n u a l ra t e s o f c h a n g e b e t w e e n p e r io d s in d ic a te d . T h e y a r e p r e s e n t e d
to a i d in c o m p a r in g m o s t re ce n t d e v e lo p m e n t s w ith p a s t "t r e n d s . "
L a te st d a t a p lo tte d : J u ly e s t im a t e d

FEDERAL RESERVE BANK OF ST. LOUIS

AUGUST 1969

from early January to May. The money stock has
shown little net change on balance since the beginning
of April. From December to April, money had in
creased at a 4 per cent annual rate. The demand
deposit component of money has declined at about
a 3 per cent annual rate in the last three months,
after increasing at about a 4 per cent rate from
December to April. Money market conditions as
measured by changes in interest rates tightened
markedly in May and June. Since late June, interest
rates appear to have leveled off in spite of con
tinued monetary restriction.

G en eral Price In d e x *

R a tio S cale

1958=100
130

Effect on the Real Sector
The slower monetary expansion since last Decem
ber may have already had some effect on total spend
ing, but experience indicates that the major effects
are likely yet to come. Retail sales, housing starts,
and employment appear to have slowed, although
frequently short-term movements in these series are
misleading. Retail sales have recently shown little
net change, compared with a 7 per cent increase in
1968; housing starts have declined for five consecu
tive months, and total employment has been on a
plateau since February. On the other hand, industrial
production has continued to increase at about the
5.7 per cent annual rate of the past two years, per
sonal income has continued its stronge advance, and
unemployment has remained at an unusually low
level.
Preliminary second quarter GNP figures indicate
continued excessive total spending and inflation. Total
R e ta il Sales
R a tio S c a le
B illio n s o f D o lla rs

R a tio Seal®
illio n s o f D o lla rs

5 0 1----------------------

--------------- --------------

lstqtr.
1961

1962

1963

1964

1965

qtr. 2nd qtr.

J L 1967
L
1966

1968

1969

• As used in N a tio n a l Income Accounts
Source: U.S. D e p a rtm e n t o f Commerce
Percentages are annual rates o f change between periods indicated. They
presented to a id in
comparing most recent developments with past "tre nd s."
Latest da ta p lo tte d : 2nd q u arte r p re lim in a ry

spending grew at a 7.4 per cent annual rate from the
first to second quarter, slower than the 8.7 per cent
rate of the past two years but still more rapidly than
the estimated 4 per cent rate of growth of produc
tive potential. Price increases have not slowed, with
the general price index rising at a 4.9 per cent rate
in the second quarter, compared with the 4.3 per cent
rate of the past two years.
Real GNP has grown at a slower annual rate each
quarter since the second quarter of 1968, rising at a
2.3 per cent rate in the second quarter of this year,
2.6 per cent rate in the first quarter, 3.2 per cent rate
in the fourth quarter last year, 4.0 per cent rate in the
third quarter and 7.4 per cent in the second. This
slowing occurred as the economy approached capacity
and could not maintain the earlier rapid pace. Fur
ther, if the inflation is to be moderated and the inter
est rate trend reversed, growth of real production
must probably decelerate before resuming a growth
rate comparable to the growth of productive potential.

When Will Price Rises Slow?

Sepl.'68 June'69

1961

1962

1963

1964

1965

1966

1967

1968

1969

Source: U.S. D e p a rtm e n t o f C om m erce
Percentages are annual rates o f change between periods indicated. They are presented to a id in com paring
most recent developments with past "trends."
Latest d a ta p lo tte d : June p re lim ina ry

In the past, real economic growth has generally
slowed prior to a reduction in the rate of price ad
vances. Usually after demand growth has slackened,
there are continued price and wage advances as part
of a delayed reaction to the previous economic
environment. In accordance with the usual time se
quence, we are not likely to see a significant
deceleration of price increases until the growth of
total spending has been moderated for a considerable
period.
Page 7

The Influence of Economic
Activity on the Money Stock
This bank has, on previous occasions, presented arguments and evidence with respect to
what has been called the “strong” monetarist position —that changes in the money stock
are the best indicator of monetary influences on the economy, and that these influences
have a significant impact on the course of economic activity over the business cycle. It is
further contended that through its control o f the monetary base, the Federal Reserve
dominates movements in money.
One of the major counter-arguments presented against the strong monetarist position is
the so-called “reverse-causation” argument. This states that actions of the public, as they re
spond to current economic conditions, so influence observed movements in the money stock
that measurements of the relation between money and economic activity give no evidence
with respect to the direction of causality. Therefore, it has been contended that the close
statistical relation observed between money and economic activity, which is one of the major
empirical bases supporting the strong monetarist position, is spurious.
The following three articles deal with various aspects of the reverse-causation argument.
The first article, “Comments on the ‘St. Louis Position” by Emanuel Melichar, Economist,
Board of Governors of the Federal Reserve System, states this argument, and maintains
that the evidence presented in support of the strong monetarist position leads to erroneous
conclusions. Melichar contends that once the money stock is made statistically free of
reverse-causation influences stemming from the behavior of the public, this “neutralized”
money stock gives an entirely different and more accurate interpretation of Federal Reserve
actions than the actual money stock.
Michael Keran’s “Reply” analyzes the statistical and theoretical underpinnings of Meli
chars argument. He concludes, on the basis of Melichar s own criteria, that the actual money
stock is superior to the neutralized money stock as an unbiased measure of Federal Re
serve actions. In addition, because no rationale is given linking the neutralized money
stock to the rest of the economy, he states it is not possible to interpret its significance.
The third article, “Additional Empirical Evidence on the Reverse-Causation Argument”
by Leonall C. Andersen, investigates some other aspects of the reverse-causation argument.
He presents empirical evidence that although the reverse-causation argument cannot be re
jected, it is of relatively minor importance in explaining movements in the money stock.
Moreover, to the extent that reverse-causation can be measured, it is due to Federal Reserve
behavior rather than to behavior o f the public. Andersen concludes that the statistical evi
dence relating changes in GNP to changes in the money stock cannot be viewed as spurious.
These three articles are available as Reprint No. 44.

Page 8

COMMENTS ON THE
"ST. LOUIS POSITION”
by EMANUEL MELICHAR*

O v E R THE PAST YEAR or so, the Review of
the Federal Reserve Bank of St. Louis has provided
a forum for exponents of a “monetary view” of
economic activity and stabilization. A number of ar
ticles, both theoretical and empirical, have discussed
indicators of monetary policy, relations between
monetary policies and the money stock, and relations
among the money stock, Gross National Product, and
components of GNP such as residential construction.
With an assist from the press, the general nature of
the view consistently expressed in these articles has
become widely known.1
The purpose of this note is to suggest that empirical
research published in the last few years increasingly
discredits a central proposition in the analytical
framework set forth and employed in these articles.
This research has received scant recognition thus far
in the Review. In his guest article, in fact, Karl
Brunner decried the lack of empirical research by
others, specifically Federal Reserve respondents, on
the crucial propositions underlying his “monetarist’s”
position; in countercritique of his and other previous
* Emanuel Melichar is an Economist in the Division of Re
search and Statistics, Board of Governors of the Federal
Reserve System. Views expressed in the paper are those of
the author and do not necessarily concur with those of
other members of the research staff or with those of the
Board of Governors.
1 For instance, “Banks and Economics: First National City
and Chase Involved Ironically in Economists’ Raging De
bate,” by Albert L. Kraus, The New York Times, Decem
ber 4, 1968, pp. 65 and 67.

critical research, various Federal Reserve writers
were said to have merely produced:
. . . an array of specific con jectu res ad van ced w ith
out analytical or em pirical substantiation. Also, not
a single p ap er of the cou ntercritiq u e developed a
relevant assessm ent of the M onetarist’s em pirical
theories or cen tral propositions.2

To this observer, the research situation seems much
different; or perhaps Brunner’s net was not large
enough. In the same interval other Federal Reserve
economists were publishing, after years of effort, sub
stantial and relevant empirical evidence. This evi
dence, while supporting some contentions of the
monetary view, tends to reveal a major defect in the
analytical framework of that view, and thereby in
procedures and conclusions of empirical analyses using
that framework.

The Crucial Issue
Much of the theoretical framework constructed
by contributors to the Review, and thus their em
pirical approach as well, depends on the answer that
is given to a seemingly simple question: to what ex
tent are observed cyclical fluctuations in the growth
of the money stock the result of action by the mone
tary authority, and to what extent are they the result
of cyclical changes in other factors?
2 Karl Brunner, “The Role of Money and Monetary Policy,”
this Review, July 1968, p. 11.
Page 9

FEDERAL RESERVE BANK OF ST. LOUIS

Contributors to the Review claim that:
. . . System actions th rou gh their im p act on highp ow ered m oney (o r m onetary b a se ) can h ave a
significant b earin g on m ovem ents in th e m oney
stock.3
. . . th e b ehavior of th e m onetary authorities dom in
ates m ovem ents in th e m oney stock ov er business
cycles.4

But their Federal Reserve opponents, according to
Brunner:
. . . con tend th at cyclical fluctuations of m onetary
grow th can n ot b e attrib uted to th e behavior of the
F e d e ra l R eserve authorities. . . . th e m oney stock
and bank cred it are dom inated b y th e public’s and
the bank’s behavior. . . . cy clical fluctuations of
m onetary grow th result prim arily from th e responses
of banks and th e public to chan gin g business con
ditions. . . . th e persistent association betw een m oney
and incom e could b e attrib u ted to a causal influ
en ce running from econ om ic activity to m oney.5

Brunner and Andersen claim that empirical studies
completely reject these contentions of their opponents:
. . . prelim inary investigations yield no support for
th e contention th at th e b ehavior of banks and the
public dom inates cyclical m ovem ents in the m oney
stock. . . . our p resent state of know ledge rejects
th e notion th at th e observed association [betw een
m oney and incom e] is essentially due to a causal
influence from incom e on m oney.6
. . . th ree studies con clu de th at behavior of th e pub
lic (e x c e p t for its b ehavior regard ing cu rren cy ) is
of m inor im p ortance in explaining short-run m ove
ments in m oney.7

The validity of this empirical answer to our crucial
question, reached by the contributors to the Review,
is vital to the validity of the further empirical work
they have published. It can be recognized readily,
for instance, that the validity of using the actual
money stock or monetary base as an indicator of the
direction and degree of monetary policy depends
directly on this answer.8 Similarly, some models used

3 Leonall C. Andersen, “Three Approaches to Money Stock
Determination,” this Review, October 1967, p. 12.
4 Brunner, p. 9.
5 Ibid., pp. 9, 13, and 20.
6 Ibid., pp. 18 and 20.
7 Andersen, p. 13.
8 For instance, Friedman states, “In principle, ‘tightness’ or
‘ease’ depends on the rate of change of the quantity of
money supplied compared to the rate of change of the
quantity demanded excluding effects on demand from

Digitized forPage
FRASER
10

AUGUST 1969

in Review articles to study relationships between
money and other economic variables are appropriate
only if this conclusion is valid, that is, if the business
cycle does not affect the money stock.
Extensive new work favors an alternative view.
Hendershott has published a detailed empirical in
vestigation of our crucial question and its implica
tions.9 He concludes that both the monetary authority
and the business cycle exerted significant and impor
tant influences on the course of the money stock
during 1952-64. The same conclusion appears to be
reached implicitly by the builders of the Federal
Reserve-MIT econometric model.10 The equations of
this model reveal significant effects of monetary policy
actions on money and other financial stocks as well
as on interest rates, of these stocks and rates on
various components of GNP, and also of GNP on
money and other financial stocks as well as on interest
rates.
From these extensive studies, this observer, at least,
concludes that neither extreme view expressed in
the preceding quotations from the Review can be
accepted. Inquiries using models that ignore either
the influence of the monetary authority or the influ
ence of the business cycle make, in effect, a specifica
tion error that leads to erroneous conclusions. A
Review article that erred by ignoring the latter influ
ence is examined next.

Money and Housing
In June 1968, the Review published a “tentative
analysis” by Norman Bowsher and Lionel Kalish,
which found that post-accord monetary restraint did
not exert the depressing effect on residential construc
tion that most people think it did.11 The analytical
monetary policy itself. However, empirically demand is
highly stable, if we exclude the effect of monetary pol
icy . . .” Milton Friedman, “The Role of Monetary Policy,”
T he American Economic Review, March 1968, p. 7.
9 Patric H. Hendershott, T he Neutralized M oney Stock: An
Unbiased Measure of Federal Reserve Policy Actions, Rich
ard D. Irwin, Inc., Homewood, Illinois, 1968. Early results
were presented to the Econometric Society in December
1964, while the author was employed by the Board of
Governors. A useful summary of Hendershott’s work is
also found in George Horwich, “The Proper Role of Mone
tary Policy,” Compendium on Monetary Policy Guidelines
and Federal Reserve Structure, Committee on Banking
and Currency, House of Representatives, December 1968,
pp. 294-304.
10Frank de Leeuw and Edward Gramlich, “The Federal
Reserve-MIT Econometric Model,” Federal Reserve Bulle
tin, January 1968, pp. 11-40.
u Norman N. Bowsher and Lionel Kalish, “Does Slower Mon
etary Expansion Discriminate Against Housing?”, this Re
view, June 1968, pp. 5-12.

FEDERAL RESERVE BANK OF ST. LOUIS

AUGUST 1969

sarily coincide with periods of slow or negative mone
tary growth. When current policy is neutral, the
money stock tends to increase if business is expand
ing and to contract if business is declining.
To develop an unbiased indicator of current policy
actions, the influences of the business cycle (includ
ing the effects of past monetary policy) were quan
tified for 1952-1964, and these influences were re
moved from the actual money stock. Turning points
in the resulting series, which Hendershott labels the
“neutralized money stock,” reflect turning points in
current monetary policy. This indicator shows, as
periods of policy restraint, those periods in which
current actions by the monetary authority were ef
fectively restraining growth of the money stock. Pe
riods of monetary ease are indicated as those in
which the monetary authority was effectively promot
ing growth in money.

procedure of the article was to compare cyclical turn
ing points in growth of the money stock with cyclical
turning points in housing, based on examination of
the chart reproduced here as Figure 1. Using a money
stock consisting of demand deposits and currency:
T h e shaded areas are periods of relatively slow (o r
n egative) m oney grow th. . . .Throughout . . . this
article these periods are considered to be ones of
m onetary restrain t.12

An opportunity is thus presented to contrast the
Bowsher-Kalish housing results with those of a similar
analysis using a more appropriate measure of mone
tary policy actions —neutralized money —a measure
based on the revised framework that allows for in
fluences from real to financial variables as well as
from financial to real variables.
F ig u r e 2

N e w Housing Starts
T o ta l P riv a te N o n fa r m
T h o u s a n d s o ( U n its ° uaMo,'\ * 7 '° 9V ° ,“ °n’hly^ 9“,* s T h o u s a n d s o f U nits
2500
S e a s o n a l ly A d | u s t e d at A n n u a l R a te s
2500

Examination of Figure 1 reveals that:
. . . relatively slow rates of m onetary grow th do not
cause excessive cutbacks in spending for homes.
. . . All m arked and sustained declines in housing
starts b egan in periods of m onetary expansion. In
several cases the decline in starts w as reversed after
th ree to six months of m onetary restrain t, and the
num ber of housing starts actually in creased .13

2000

1500

1000

The generalized conclusion is:
D uring the first th ree to six m onths of a period of
slow m onetary expansion, th e housing sector has
tended to continue its relative decline begun during
a previous period of m onetary expansion; b u t then
as m onetary restrain t continued, housing ten ded to
level off or start rising relative to other activities.14

0 I---------- i—

1952

....... . i ;;; H ,. i i h

U . . 11 . . . i i m . . i .. . i . . . l ..—

1968

L a t e s t d a t a p lo t t e d : l s t q u a r t e r 1 9 6 8 p r e l i m i n a r y
N o t e : D a s h lin e r e p r e s e n t s p o li c y sh ift to m o r e e a s e in A u g u s t 1 9 5 3 .

However, Hendershott shows that because of the
business cycle’s influence on the money stock, periods
of restrictive monetary policy actions do not neces
12Ibid.,

p .

i3Ibid., pp. 6 and 7.
u lbid.,

p .

S h a d e d a r e a s a r e p e r i o d s o f m o n e t a r y re st ra in t (d e c lin e in the n e u t r a liz e d m o n e y
sto c k) d u r i n g 1 9 5 2 -6 4 .

The shaded areas in Figure 2 indicate periods of
restrictive monetary policy actions during 1953-64,
as determined by Hendershott.15 The simple rela15Hendershott, pp. 120-123. Turning points in monetary
policy actions during 1957-64 are shown as revised by HenPage 11

AUGUST 1969

FEDERAL RESERVE BANK OF ST. LOUIS

tionship between shifts in policy and turning points
in housing starts is close and relatively consistent. In
the two major housing declines during the period
covered, starts fell soon after monetary policy shifted
from ease to restraint and did not recover until after
effective policy shifted back to ease. Hendershott
also identifies a policy shift to “significantly more”
ease in August 1953, and this shift also coincides
with an upward move in housing starts. Housing
activity continued upward during a short period of
moderate restraint in 1962, and later fell somewhat
in 1964, during monetary ease, probably because some
areas were temporarily overbuilt. Another severe
housing decline did not begin until 1966, which may
be presumed to have been a period of restrictive
policy actions, although the neutralized money stock
series has not been calculated beyond 1964.
One hesitates to draw conclusions from this simple
analytical procedure without further investigation.
This housing model, like that of Bowsher and Kalish,
provides no place, for instance, for expression of the
effects of changes in the demand for housing or in
institutional arrangements that govern the flow of
funds into housing. But a simple relationship as strong
and consistent as that found between turning points
in housing starts and in the neutralized money stock
during 1953-64, and also consistent with a body of
theory, is probably unlikely to be completely upset
by expansion of the analysis to include other per
tinent variables. Thus, in contrast to Bowsher and
Kalish, one might tentatively conclude that monetary
restraint exerted such a strong depressing influence
on residential construction, and monetary ease such
a strong stimulus, that the direction of monetary
policy was a principal determinant of the direction
of housing activity in the period from 1953 to 1964.
A more general criticism of Bowsher and Kalish is
also implied above. When a preliminary examination
of simple relationships yields essentially negative re
sults inconsistent with generally accepted theory, it
is incumbent upon the analyst to investigate further
before announcing a revision of theory. In this case,
it was necessary that the authors explain variation in
housing satisfactorily with variables other than the
rate of money growth before concluding that the rate
of money growth had no effect. It is entirely con
ceivable, for instance, that cyclical changes in the
demand for housing could, in the simple model, have
masked the effect of money growth on housing.
dershott in “A Quality Theory of Money,” presented at the
Money and Banking Breakfast of the Midwest Economics
Association, Chicago, April 18, 1969.

Digitized forPage
FRASER
12

Figure 3

O u tlay s of Selected Sectors
a s a P e r C e n to fG N P *
Q u a r te r ly T otals a t A n n u a l Rates
S e a s o n a lly A d ju s te d

Per C ent

P e rC e n t

Consumer Durable Goods

11.2 12

...

4
2
o

1 I I I 111 I H ,1111if i, \

111

III

4
2

Producers' Durable Equipment
lus Change in Bus nes Irventorie s

111 I I I

III

■
m

10
\

8.0

1f 1

1 1

111 111 f i t fi 11 i l l

i i

m i

111 111

111

. '
1
K C ilU e in

m m

ia j IIUI IUI

6
■L

(3.!

4
2

III

195;

1 i 11

ill Hi i 111 \ 1 111 111 in 11 111

111
56

196*3

*ln Re a lT e rm s-1 9 5 ( p ric e s .
Late s td a ta p lo tte 1: 1st q u a r te r 1968
Shac e d a re a s a re s e rio d s o f s lo w g ro w th o r d e c lin e in m o n ey stock.

Bowsher and Kalish are aware of these considera
tions. Observe their lack of compassion for others
who blunder in the economic maze:
T h e w idespread belief th at housing has b een seri
ously h urt b y m onetary restrain t p rob ab ly has re
sulted from m istakenly identifying rising m arket
in terest rates w ith m onetary restrain t. In terest rates,
unadjusted fo r p rice developm ents and fo r G ov
ernm ent borrow ing, and u n related to chan gin g profit
exp ectation s of businesses, are usually a poor guide
to eith er th e rate of m onetary expansion or its im
p a c t on econ om ic activ ity .18

Thus are condemned those whose naive analysis
founders on the reefs of the procyclical bias in rates
of interest. But it is just as easy to come to grief on
the shoals of the procyclical bias in the money stock.

Monetary Policy and the Business Cycle
Bowsher and Kalish, in Figure 3, also examine the
behavior of expenditures for consumer durables and
16Bowsher and Kalish, p. 12.

FEDERAL RESERVE BANK OF ST. LOUIS

AUGUST 1969

for business equipment and inventories during peri
ods of monetary ease and restraint. They observe
that, for these sectors,

Figure 4

O u tlays of Selected Sectors
a sa

Per Cent o fG N P *

Q u a r te r ly T otals a t A n n u a I Rates

. . . declines or slow er rates of increases during
periods of slow m oney grow th have been roughly
equal to those in [residential con struction ]. Also,
declines in the oth er tw o sectors sometim es actually
began during the periods of slow m onetary exp an
sion. It appears th at housing has not been any m ore
adversely affected during periods of relatively slow
m onetary grow th than have these other secto rs.17

This may be about all that one can glean from
Figure 3. But contrast these slim pickings with the
insights transmitted by Figure 4, in which unbiased
periods of policy ease and restraint are delineated.
One can see how monetary policy shifted to re
straint after the proportion of outlays on business
equipment and inventories had increased, accom
panied by a shift of consumer spending into durables
or housing, or both. One can almost sense the in
flationary strains resulting from these spending shifts
after productive resources become relatively fully
employed. ( Charts of spending totals, employment
rates, and prices would help here. One can also
ponder whether restraint appears to have been im
posed too early in the 1958-59 upswing.) One can
see that restraint hits housing first; a turnaround in
the proportion of outlays spent on business equipment
and inventories and on consumer durables takes more
time, and a significant reduction takes even longer.
But when the big drop in business spending does
come, its speed is alarming, and one can visualize
the monetary authorities bailing out of restraint and
into ease as the fall is detected —and then waiting
quite a while for the turn to come in relative outlays
for both business and consumer durables. Is not a
significant portion of the cyclical policy story of 195264 found in these simple charts?
Brunner asks a question of “our monetary policy
makers, their advisors and consultants: How do you
justify your interpretation of policy, and how do you
actually explain the fluctuations of monetary
growth?”18 The neutralized money stock would seem
to be a useful pedagogical tool.

Review of the Issues
On the issues frequently raised by contributors to
the Review, what are the views that seem consistent
with results of the recent empirical efforts we have
cited?

2 — j— p..... ........... ............. - ....

0 1 M . . : ; — lj........... ...................; ; n _____________ _ J ___j _ u ________i___q
1952

1968

*ln Real Ter ms-19 5 8 p ric e s .
L ate st d a ta p lo tte d : 1st q u a rte r 1968
N o te: Dash line represents p o lic y sh ift to m ore ease in A u g u st 1953.
S haded areas are p e riod s o t m o n eta ry re stra int (decline in the n e u tra lize d money
stock) d u rin g 1952-64.

First, we agree with Review contributors that the
monetary authority can exert and has exerted signifi
cant influence over fluctuations in the growth of the
money stock. For instance, Hendershott’s neutralized
money stock exhibits large movements during 1952-64
that resulted mainly from current actions of the mone
tary authority.19 Also, simulation of a monetary pol
icy action in the FRB-MIT model yields a quick and
strong effect on demand deposits.20
Second, in contrast to the Review position, the busi
ness cycle is also thought to exert significant influences
tending to affect the growth of the money stock.
Hendershott found large changes in money attribut
able to these influences. The FRB-MIT model pro
vides implicit confirmation of such effects. For ex

17Ibid., p. 9.

19Hendershott, p. 120. But also see cautionary note on pp.
105 and 106.

18Brunner, p. 24.

20De Leeuw and Gramlich, pp. 15, 16, and 27.

Page 13

AUGUST 1969

FEDERAL RESERVE BANK OF ST. LOUIS

ample, simulations show that changes in fiscal policies
affect the volume of demand deposits.21
Third, in further empirical work on relationships
between money and other economic variables, we
prefer to start with models that provide for repre
sentation of the effects of real variables on financial
variables. These models would tend to attribute some
of the simple correlation between money and income
to the influence of income on money. This procedure
seems to leave more scope for findings that non
monetary variables also influence income, as well as
for findings of longer lags in the effect of money on
income, than is possible in the simpler models used
by contributors to the Review.

on GNP. With the FRB-MIT model, simulations of
changes in monetary policies showed significant even
tual effects on GNP.22
Fifth, in looking for an indicator of the direction
of monetary policy, the money stock and the mone
tary base are viewed with reservations similar to
those that contributors to the Review express about
interest rates. Further work on updating and refine
ment of an unbiased measure is needed.

In some investigations of the effects of monetary
policy actions, it might be possible to retain simplicity
in the models used by employing an unbiased meas
ure of such actions, as was attempted in the housing
analysis reported herein. The money stock is not ap
propriate for such use, as judged by Hendershott’s
evidence from 1952-64.

Sixth, we note Hendershott’s conclusion that the
monetary authority was effectively able to translate
a desire for monetary ease or restraint into an actual
condition of ease or restraint, with discrepancies few
in number and short in duration during 1952-64.23
Brunner’s notion that the monetary authority was
unable or incompetent to carry out the direction of
its policy wishes during most of this period is re
jected.24 This conclusion, however, leaves ample
scope and need for study of the timing and magni
tudes of policy actions, as recent events continue to
demonstrate.

Fourth, we agree with the Review position that
changes in monetary policy exert a significant impact

n ib id ., p. 27.
23Hendershott, p. 134.

2tIbid., pp. 27-29.

24Brunner, p. 21.

The Reply to this Comment begins on next page.

REPLY
by MICHAEL W. KERAN

HIS REPLY is divided into three parts: first, a
review of the empirical work by Patric Hendershott,1
which Melichar relies upon in the preceding “Com
ment” to justify his analysis and conclusions; second,
a critique of the relevance of this empirical work;
and third, an evaluation of the theoretical under
pinnings of Melichar’s analysis. Following this ap
proach makes it unnecessary to deal point by point
with some of the more narrowly conceived issues
raised by Melichar.

A Summary of Hendershott’s Analysis
The issue raised by Hendershott is how to con
struct an unbiased measure of Federal Reserve policy
actions. The importance of this issue is obvious. With
out such a measure it is not possible to evaluate the
appropriateness of Federal Reserve behavior.
The criterion Hendershott uses for determining
whether a monetary variable is an unbiased measure
is that its value be dominated by Federal Reserve
actions, and therefore not directly influenced by ac
tions of the private sector of the economy. Hender
shott asserts that any monetary variable would be an
unbiased measure of monetary policy if it satisfied
this “dominance” criterion.
Unfortunately, movements in most monetary varia
bles, such as interest rates, the money stock, or bank
credit, are determined by a mixture of both Federal
Reserve and private actions. One of the major
1Patric Hendershott, T he Neutralized Money Stock: An Un
biased Measure of Federal Reserve Policy Actions, Richard
D. Irwin, Inc., Homewood, Illinois, (1 9 6 8 ).

criticisms leveled against interest rates as a measure
of Federal Reserve actions by those who favor the
money stock “measure” is that changes in the ob
served level of interest rates are dominated by pri
vate rather than Federal Reserve actions. However,
Hendershott considers that the money stock also suf
fers from this problem, being simultaneously deter
mined by public and monetary authority behavior.
According to Hendershott, if the influence of the
public can be removed, any monetary variable will
give the same unbiased interpretation of Federal Re
serve actions.2 Because of the complexity of the proc
ess of removing public influences, Hendershott per
forms a “neutralization” procedure on only one
variable —the money stock.
To make the money stock an unbiased measure of
Federal Reserve actions over the business cycle, he
proposes to remove the influence of the public from
the cyclical movements in the money stock. To ac
complish this he derives a money stock identity
which has fourteen terms. Each term is constructed
from components of the sources and uses of mem
ber bank reserves, and a multiplier based on average
reserve requirements on demand deposits. He found
that six of these components (float, excess reserves,
time deposits, currency held by the public, member
bank borrowings from the Federal Reserve, and the
gold stock) were substantially influenced by the be
havior of the public. That is, their value could be
2lbid., p. 3. “W hich indicator is neutralized is probably unconsequential because after the impact of the business cycle
has been removed, the indicators should have similar cycli
cal patterns; the only systematic cyclical influence remain
ing in any of them is due to Federal Reserve actions.”
Page 15

FEDERAL RESERVE BANK OF ST. LOUIS

satisfactorily predicted on the basis of current and
lagged values of GNP, market interest rates, and
other indicators of economic activity.
Of the remaining eight components, seven3 were
either small enough so that their influence on the ob
served money stock was negligible, or they were little
influenced by the actions of the public. The remaining
component (Federal Reserve holdings of Government
securities) was taken to be under the complete con
trol of the monetary authorities and, therefore, for
statistical purposes, considered exogenous.4
Using standard statistical procedures, Hendershott
estimated the degree of public influence on the first
six components of member bank reserves discussed
above. With these statistical results he was able to
remove the effect of the public’s actions, and con
struct a cycle-free value for each component. When
the six cycle-free and eight observed components of
member bank reserves are inserted into the money
identity, they produce Hendershott’s “neutralized”
money stock. The influence of the public on four of
these components (time deposits, excess reserves,
float and currency in the hands of the public), al
though significant, tends to work in offsetting direc
tions on the money stock, that is, it tends to be selfneutralizing. Only member bank borrowings and gold
flows were found to be highly procyclical. The adjust
ment of these two items explains most of the differ
ence between the actual and the neutralized money
stock.5

A Critique of Hendershott’s Analysis
An evaluation of the neutralized money stock can
be conducted on both a theoretical and an empirical
level. This section considers the relevant empirical is
sues, and the following section considers some theo
retical issues.
Hendershott contends that the way to eliminate
the influence of public actions on the money stock is
to develop measures of their influence and then sub
tract them from those components of the money stock
which the public has been observed to influence. This
3Treasury currency, vault cash of nonmember banks, Treas
ury cash holdings, U.S. Government deposits at member
banks, foreign deposits at Federal Reserve Banks, Federal
Reserve Accounts not elsewhere classified, and nonmember
bank demand deposits.
♦Hendershott, p. 13. “The money stock is considered as re
sponding to a change in the Federal Reserve’s portfolio
of government securities and some minor member-bank
reserve components rather than to a change in the ad
justed monetary base, which is equivalent to the sum of
the Federal Reserve’s portfolio, Federal Reserve float, the
U.S. gold stock, and the same minor reserve components.”
H bid., p. 117.

Page 16

AUGUST 1969

procedure is not easy or straightforward. Hendershott
devotes two-thirds of his book to this task and shows
considerable ingenuity in measuring the influence of
the public on certain components of the money stock
identity. He considers that this process is sufficient to
neutralize the money stock and make it an unbiased
measure of Federal Reserve actions.
This conclusion is valid, however, only if varia
tions in those components which the public influ
ences are independent of variations in the values of
the other components of the money identity. If it is
desirable to eliminate the influence of the public from
some components, then it is also desirable to con
sider whether other components in the money iden
tity behave in a way which offsets or reinforces these
public influences. If such behavior exists, then the
neutralization process used by Hendershott will no
longer lead to an unbiased measure of Federal Re
serve actions.
The possibility of a systematic interdependence
between the components of member bank reserves,
and thus between the terms of the money stock iden
tity, is strong because a large share of changes in Fed
eral Reserve holdings of Government securities (open
market operations) are designed to “stabilize money
market conditions.” Operationally, this means that
some Federal Reserve purchases and sales of gov
ernment securities are designed to offset irregular
seasonal and cyclical movements in member bank re
serves. Hendershott acknowledges that the Federal
Reserve most likely does offset such flows when they
are the result of international transactions, and there
fore constructs a “modifled-neutralized” money stock
which implicitly treats gold flows as if they are offset
by Federal Reserve actions.6
There is no reason why Hendershott should have
stopped with allowing only for offsetting actions with
respect to gold. There are a wide range of other finan
cial flows which also influence money markets, and
which the Federal Reserve could offset if it chose to
do so.7 We tested the possibility that some Federal
6Hendershott gives two reasons for constructing a “modifledneutralized” money stock: ( 1 ) to make it comparable with
“policy statements” (which refer to actions net of offsetting
gold movements); and ( 2 ) “neutralization of gold stock
is the most tenuous . . . due to the complexities of the bal
ance of payments and the somewhat heroic assumptions
made regarding foreign central bank behavior.”
7Hendershott argues (page 9 4 ) that such offsetting be
havior is, for whatever reason, still Federal Reserve actions
which should be measured in terms of their independent
effect on the money stock. This is not a valid position to
hold if (as is pointed out in the text) these actions are
induced by movements in other components of the money
identity.

FEDERAL RESERVE BANK OF ST. LOUIS

AUGUST 1969

Reserve actions, measured by changes in its govern
ment securities holdings (adjusted for changes in
reserve requirements)8, were designed to offset
movements in other items in the money identity.
We were particularly interested to see if the Federal
Reserve acted to offset these components which Hen
dershott found were influenced by actions of the
public.9 To make the test as comparable as possible
with Hendershott’s, the coefficients were estimated
by ordinary least squares regressions using first differ
ences of monthly data (not seasonally adjusted)
from January 1952 to December 1964 (the same pe
riod used in Hendershott’s study).10
ASa =
+

.038 — 0.88 AG — 0.35 A F - 1.18 AB
(2 .1 1 ) (1 0 .6 9 )
(4 .1 9 )
(7 .8 1 )

1.29 ACi + 0.69 AO + 1.18 AC,,
(1 .8 4 )
(9 .7 4 )
(1 6 .9 2 )

R2 =
.72
D -W = 2.03

A =
Sa =

month-to-month changes in each series.
Federal Reserve holdings of government securities ad
justed for changes in reserve requirements.
G = United States gold stock.
F = Federal Reserve float.
B = Borrowings of member banks.
Ct = Currency and coin issued by United States Treasury.
O = Other Federal Reserve accounts (mainly Treasury and
foreign deposits) and Treasury cash holdings.
Co = Currency in the hands of the public.
Numbers in parenthesis are “t” statistics which indicate that
all coefficients are estimated to be significant at the one
percent level, except Treasury currency and coin (A C t).

These results indicate that adjusted open market
operations (ASa) tend to offset the movements
in the other components.11 For example, an increase
in the gold stock would, ceteris paribus, cause the
money stock to increase, but because the Federal
Reserve reduces it holdings of government securities
by almost the same amount, the actual effect on the
money stock is negligible. Conversely, an increase in
currency in the hands of the public ( ACo) would,
ceteris paribus, reduce the money stock,12 but be
cause the Federal Reserve increases its holdings of
8The reserve adjustment was added to Federal Reserve
holdings of government securities so that this one variable
can simultaneously measure both open market operations
and changes in reserve requirements.
9Time deposits and excess reserves were not included in
this regression because the link between them and open
market operations cannot be portrayed with the simple
one-to-one correspondence used here.
10These are the same symbols used by Hendershott except
for the sum variable O and the reserve adjustment on S.
11The sign of the coefficient in the Treasury currency variable
is positive, while an offset would be negative. However,
this coefficient is not statistically significant and no economic
interpretation can be or is made on this basis.
12An increase in currency ( which is a component of the
money stock) will cause a decrease in the money stock,
because without an offset it would reduce bank reserves,
forcing a multiple contraction in demand deposits.

Government securities, the effect of that change on
the money stock is offset.
Seventy-two per cent of the variation in adjusted
Federal Reserve holdings of Government securities
is directly related to offsetting these specific sources
of potential change in the money stock. Considering
the important role which “defensive” operations have
traditionally played in Federal Reserve actions, these
results are not surprising.13
Hendershott found that, of the six items in the
money stock identity which were influenced by the
public, only member bank borrowings and gold were
important in causing the discrepancy between the
actual and neutralized money stock. Thus, as a prac
tical matter, if the influence of borrowings and gold
on the money stock are offset by variations in Federal
Reserve Government security holdings, then the ac
tual money stock will be a less-biased measure of
Federal Reserve actions than the neutralized money
stock. Our regression test shows this is exactly what
happened. Federal Reserve holdings of Government
securities tended on the average to offset $1.18 of
every $1.00 of member bank borrowing and $.88 of
every $1.00 of gold flows in the same month in which
they occurred.
On the basis of the criteria which Hendershott
himself established, and which Melichar accepts, the
actual money stock is superior to the neutralized
money stock as a measure of Federal Reserve Actions.
Thus, any analysis or conclusions drawn with respect
to Federal Reserve actions on the basis of the neu
tralized money stock are misleading.

Federal Reserve Actions and
Monetary Influences
The preceding empirical investigation established
that the observed money stock is a better measure
of Federal Reserve actions than the neutralized money
stock. However, what if open market operations had
not been conducted in a way to offset the influence
of borrowings and gold on the money stock? In that
case, Hendershott’s neutralized money stock would
have been a superior measure of Federal Reserve
actions. However, even then, Melichar’s analysis and
conclusions are not necessarily valid, because he ig13This discussion should not be taken to imply that all Fed
eral Reserve actions are defensive in nature. Given suitable
measures of Federal Reserve objectives, they could be
included in the regression. Fo r an example of this, see
“An Explanation of Federal Reserve Actions (1 9 3 3 -6 8 )”
by Michael Keran and Christopher Babb, this Review,
July 1969.
Page 17

AUGUST 1969

FEDERAL RESERVE BANK OF ST. LOUIS

nores an important theoretical consideration. He im
plicitly assumes that the least-biased measure of Fed
eral Reserve actions is also the best indicator of
monetary influences on the economy. This assumption
is not necessarily true.
Consider the period before 1914 when the Fed
eral Reserve did not exist. Does the absence of a
central bank mean that there were no monetary in
fluences on the economy? No, obviously such influ
ences did exist. The absence of a central bank only
means that the discretionary powers which the Fed
eral Reserve now exercises could not be utilized to
control the money stock.
In the pre-Federal Reserve era the dominant in
fluence on the money stock was the balance of pay
ments, because of the consequences this had on the
domestic stock of gold which supplied the base for
the money stock. Because the balance of payments,
and therefore the supply of gold, depended to a large
extent upon conditions in the United States over the
business cycle, movements in the money stock were
strongly influenced by domestic economic conditions.
This mechanism in no way precluded changes in the
money stock from influencing domestic economic
activity. Indeed, to the extent that the gold standard
was successful in the pre-World War I era, it was due
to this essential double link from income to money
and from money to income.
The monetary influence on the economy can oper
ate quite independently of the source of the mone
tary change, irrespective of whether or not the change
is the result of discretionary central bank actions or
induced movements in the gold stock. A statistical
problem related to interpretation of the regression
coefficients may arise in a single equation model,
however, where income may be influencing the money
stock. A statistically significant coefficient relating
changes in money to changes in income will not pro
vide statistical proof that the direction of causality
goes from money to income, unless the factors de
termining the movement in the money stock can be
shown to be statistically independent of income in

Page 18

the contemporaneous period (see the companion ar
ticle by Leonall C. Andersen for a more thorough
consideration of this issue.)
Even if the neutralized money stock were an un
biased measure of Federal Reserve actions, it would
not necessarily be an accurate measure of monetary
influences on the economy. Such a measure can only
be derived within the context of a validated economic
theory, which specifies the mechanics of the monetary
influence. A statistical evaluation of the theoretical
link between the monetary variable and the economy
is an integral part of the evaluation procedure.
There are two well-specified theories relating mon
etary influences to the rest of the economy: A neoKeynesian theory which measures the influence of
monetary variables through variations in interest
rates, and a modern quantity theory which measures
monetary influences through variations in the money
stock and related monetary aggregates. No economic
theory has been presented either by Hendershott or
Melichar which links a neutralized money stock to
economic activity.14 At the very least, such a model
would have to show how those changes in the money
stock, which were induced by public action, had a
different effect on economic activity than those
changes in the money stock induced by Federal Re
serve actions.
Melichar’s use of the neutralized money stock in
his analysis of monetary influences on economic activ
ity is inadequate on two counts: first, the neutralized
money stock is not an unbiased measure of Federal
Reserve actions, and second, no evidence has been
presented which supports the position that the neu
tralized money stock is a good indicator of monetary
influences on the economy.

u This should not be taken as a comment on Hendershott’s
book because his interest is in measuring Federal Reserve
actions, not monetary influences on the economy. How
ever, when one uses the neutralized money stock in an
analysis of economic activity (as Melichar does), some
model linking it to economic activity is called for.

See the companion article beginning on the
next page for statistical evidence relating
to other aspects of the reverse-causation argument.

ADDITIONAL EMPIRICAL EVIDENCE
ON THE
REVERSE -CAUSATION ARGUMENT’
by LEONALL C. ANDERSEN

COMMON CRITICISM of studies which relate
changes in gross national product (GNP) to changes
in the money stock is the contention that the money
stock is so influenced by economic activity that it is
very difficult to identify and interpret the response of
GNP to changes in money. Those who argue along
this line assert that regression coefficients relating
changes in GNP to changes in money, particularly in
the current quarter, may be nothing more than a re
flection of the response of money to changes in eco
nomic activity. In other words, the question arises as
to whether the money stock can be treated as an
exogenous variable.
This reverse-causation argument has frequently
been made with respect to the recent study reported
by Jerry L. Jordan and the author.1 That study tested
three hypotheses regarding the response of GNP to
monetary and fiscal actions. These hypotheses were:
“The response of economic activity to fiscal actions
relative to that of monetary actions is: (I) greater,
( I I ) more predictable, and ( I I I ) faster.” In order to

test these hypotheses, test statements were presented
in the form of single-equation, reduced-form relation
ships relating changes in GNP to changes in fre
quently used summary measures of monetary and
fiscal actions. Results were reported for tests based
on money (narrowly defined) and the monetary base
as summary measures of monetary actions, and vari
ous high-employment budget concepts as summary
measures of fiscal actions. The results of the tests led
to the rejection of all three hypotheses.
The reduced-form equation found most useful was
one with quarterly changes in nominal GNP as the
dependent variable and quarterly changes in the
money stock and in high-employment Government
expenditures as exogenous variables (Table I ) .2 The
T a b le I

REGRESSIONS OF CHANGES IN
GNP O N CHANG ES IN M ONEY
AN D FEDERAL EXPENDITURES
( 1/1953 - 1/ 1 9 6 9 )
Am

‘ Preliminary versions of this article were presented at a
Money and Banking Seminar, Federal Reserve Bank of Min
neapolis, May 9, 1969, and at an Economic Seminar, Fed
eral Reserve Bank of Philadelphia, May 23, 1969. The contents
of this article are summarized in “Money and Economic Fore
casting,” a paper presented at the National Association of
Business Economists’ Seminar on “The Role of Money in E co
nomic and Business Forecasting,” New York City, June 5,
1969. The paper will appear in Business Economics, vol. IV,
no. 3, Sterlip Press, Inc., New York, N. Y. (September 1 9 6 9 ).
The author received many helpful comments, including con
structive criticisms, from the participants of these seminars, par
ticularly Richard Davis, Michael Evans, Edward Gramlich,
and John Kalchbrenner. He also received valuable sugges
tions from Phillip Cagan, David Fand, Jerry Jordan, Thomas
Mayer, Allan Meltzer, and Anna Schwartz. Elaine Goldstein
was a valued assistant in the preparation of this study. The
content of this article remains the sole responsibility of the
author.
1 Leonall C. Andersen and Jerry L. Jordan, “Monetary and
Fiscal Actions: A Test of Their Relative Importance in
Economic Stabilization,” this Review, Federal Reserve Bank
of St. Louis, November 1968, and available as Reprint No. 34.

0.41

1.51 *

»-l

1 .5 5 *

t-2

1 .4 4 *

-0 .0 6

t-3

1 .3 0 *

-0 .7 0 *

Sum

5 .7 9 *

0 .1 6

C o n sta n t

2 .3 3 *

0 .6 4

S.E.

3 .9 2

D -W

1 .7 7

0 .5 0 *

♦Coefficients statistically significant a t 5 per cent level.
Note: Coefficients estimated using Almon lag technique with a fourth
degree polynom ial; first differences in quarterly seasonally ad
justed data are used. S.E . is the standard error of the estimate,
and D-W is the Durbin-Watson statistic.

2 High-employment receipts of the Government were found
to have little explanatory power and were, therefore, ex
cluded from the equation. High-employment expenditures
include both outlays for goods and services and transfer
payments.
Page 19

FEDERAL RESERVE BANK OF ST. LOUIS

Almon lag procedure was used, with the lag period
for both exogenous variables consisting of observa
tions for the current and three preceding quarters.
This equation has been updated for this article to
include the first quarter of 1953 through the first
quarter of 1969.
As indicated in Table I, current period GNP re
sponds positively to changes in the money stock in
the current quarter and in each of the three preced
ing quarters. The total response to a given change in
money is 5.8 times the change, which is found by
summing the coefficients. On the other hand, current
period GNP responds positively to changes in Gov
ernment expenditures during the first two quarters
and negatively during the last two, with a total re
sponse not significantly different from zero (sum of
AE coefficients in Table I).
This article reports the results of testing the general
proposition that the money stock can be treated as an
exogenous variable in empirical research. The results
indicate that the response of money to economic ac
tivity is very small, and that this response does not
significantly affect the estimated response of changes
in GNP to changes in money in the Andersen-Jordan
equation. The reverse-causation argument, to the ex
tent that it may produce serious bias in this equation,
is not supported by the evidence presented in this
article.

Summary of Channels of the Influence
of Economic Activity on the Money Stock
The question of the influence of economic activity
on the money stock can be examined best within the
context of a specified money stock function. One
such function has been developed and subjected to
considerable analysis by Karl Brunner and Allan
Meltzer.3 The narrowly defined money stock ( M ) is
presented as the product of a money multiplier (m)
and the monetary base (B ):
M — mB
The money multiplier is defined as follows:
1+k
m = ---------- ---------r ( l+ t - f d ) + k
In the above, k is the ratio of currency held by the
nonbank public to private demand deposits; t is the
ratio of private time deposits to private demand de
posits; d is the ratio of Government deposits at com
mercial banks to private demand deposits; and r is
3 See Albert Burger, “An Analysis and Development of the
Brunner-Meltzer Non-Linear Money Supply Hypothesis,”
Working Paper No. 7, Federal Reserve Bank of St. Louis,
May 1969.

Page 20

AUGUST 1969

the ratio of total commercial bank reserves to total
bank deposits.4
Changes in the multiplier reflect, among other fac
tors, actions of the public regarding their desired
holdings of currency, demand deposits and time de
posits, and actions of the commercial banks regarding
desired holdings of excess reserves. These decisions
are usually postulated to depend on GNP, market
interest rates, and expectations about the future.
Changes in the monetary base summarize Fed
eral Reserve actions involving open-market transac
tions, changes in the discount rate, and changes in
reserve requirements.5 Changes in the base may also
affeot interest rates, thereby inducing changes in the
money multiplier.
Critics of the Andersen-Jordan study have postul
ated that movements in GNP directly (and indirectly
through interest rates) exert such an influence on the
money stock that there is a positive association be
tween changes in money and GNP,e and therefore,
they assert, the estimated influence of changes in
money on GNP is overstated. These critics are par
ticularly concerned about the estimated relationship
between contemporaneous changes in GNP and the
money stock.
Within the context of the Brunner-Meltzer money
stock framework, if economic activity induces changes
in the money stock, it must operate through induced
changes in the multiplier and/or in the monetary
base. This article, therefore, investigates the influence
of economic activity on these two variables.
4 Member bank reserves plus vault cash of nonmember banks,
adjusted for changes in reserve requirements of member
banks.
5 Fo r a discussion of the monetary base see: Leonall C.
Andersen and Jerry L. Jordan, “The Monetary Base — E x
planation and Analytical Use,” this Review, August 1968.
6 W ith regard to these criticisms of the original AndersenJordan article, see W alter W . Heller’s comments in his
New York University debate with Milton Friedman, No
vember 14, 1968. A transcript of this debate appears in
Monetary Versus Fiscal Policy, W . W . Norton and Co.,
N. Y., 1969. Also see: Frank de Leeuw and John Kalchbrenner, “Monetary and Fiscal Actions: A Test of Their
Relative Importance in Economic Stabilization — Comment,”
this Review, April 1969. Also, see: Lyle Gramley, “Guide
lines for Monetary Policy — The Case Against Simple
Rules,” a paper delivered at the Financial Conference of
the National Industrial Conference Board, New York, Feb
ruary 21, 1969.
For other recent discussions of the influence of economic
activity on the money stock see: Emanuel Melichar, “Com
ments on the St. Louis Position,” this Review, August 1969.
Also, Patric Hendershott, T he Neutralized M oney Stock: An
Unbiased Measure of Federal Reserve Policy Actions, Richard
D. Irwin, Inc., Homewood, Illinois, 1968. For a discussion of
both of these works, see: Michael Keran, “Reply” to Melichar’s article, this Review, August 1969.

FEDERAL RESERVE BANK OF ST. LOUIS

AUGUST 1969

Test of Hypotheses
Four hypotheses are tested to examine the validity
of the proposition that changes in the money stock
are caused primarily by changes in total spending
(GNP), and that the Andersen-Jordan relationship
between changes in GNP and changes in money
reflects mainly this reverse causation. Ordinary leastsquares regressions are used in these tests, based on
quarterly data for the period from the first quarter
1953 through the first quarter 1969.

Hypothesis I
The first hypothesis is that changes in GNP have
a greater influence on changes in money than do
changes in the monetary base. This is tested by re
gressing AM on current and three lagged values of
both AGNP and AB.7 The response of money to
changes in GNP is statistically significant for only
the third lagged quarter, and in this case the relation
ship is negative (Table II), contrary to the positive
relationship postulated by the critics. On the other
hand, there is a statistically significant positive rela
tionship between AM and AB in the first (contem
poraneous) quarter.
T a b le II

REGRESSIONS OF CHANGES IN M O N EY O N
CHANGES IN GNP A N D THE MONETARY BASE
( 1/1953 - 1/ 1 9 69 )
R e g re ssio n Coefficients
L ags
t

AGNP
0 .0 2 4 4 3

AB
1 .8 3 0 7 1 *

1-1

0 .0 0 4 1 8

0 .6 5 9 1 1

t-2

-0 .0 0 2 3 0

0 .3 9 5 9 7

t-3

-0 .0 3 6 9 5 *

Sum

-0 .0 1 0 6 4

C o n sta n t

0 .0 7 2 7 5

0 .7 0

S.E.

0 .6 2

D -W

1.72

— 0 .6 0 5 0 0
2 .2 8 0 7 9 *

Beta Coefficients
AGNP
0 .1 5
0 .0 3
-0 .0 1
— 0 .2 2 *
-0 .0 5

Ab
0 .6 6 *
0 .2 3
0 .1 4
— 0 .2 0
0 .8 3 *

♦Coefficients statistically significant a t 5 per cent level.
N ote: Coefficients estimated using ordinary least squares technique ;
S .E . is the standard error of the estimate, and D-W is the
Durbin-Watson statistic.

by the sum of the beta coefficients) the response of
money to AB clearly dominates that to AGNP. Since
these results are inconsistent with Hypothesis I, the
hypothesis is not confirmed.

Hypothesis II
As mentioned earlier, one channel by which eco
nomic activity may influence the money stock is
through the money multiplier. Also, in the money
stock framework used in this article, AB influences
market interest rates and thereby influences the money
multiplier. Hypothesis II holds that the effect of
AGNP on m dominates the effect of AB.
T a b le III

REGRESSIONS OF CHANGES IN THE M ONEY
MULTIPLIER O N CHANG ES IN GNP
A N D THE MONETARY BASE
( 1/1953 - 1/ 1 9 6 9 )
R e g re ssio n Coefficients
L a gs
t

AGNP
0 .0 0 0 4 4

Beta Coefficients
A

g n p

-0 .0 1 5 8 2 *

0 .2 2

AB
-0 .4 8 *

t-1

0 .0 0 0 0 6

0 .0 1 3 7 8 *

0 .0 3

0 .4 1 *

t-2

0 .0 0 0 0 1

0 .0 0 7 8 6

0.01

0 .2 3

t-3

-0 .0 0 0 7 5 *

-0 .0 0 8 3 8

-0 .3 7 *

-0 .2 3

Sum

-0 .0 0 0 2 4

-0 .0 0 2 5 6

-0 .1 1

-0 .0 8

C o n sta n t

0 .0 0 0 6 6

0 .3 6

S.E.

0.01

D -W

1 .6 7

♦Coefficients statistically significant a t 5 per cent level.
N ote: Coefficients estimated using ordinary least squares technique;
S .E . is the standard error of the estimate, and D-W is the
Durbin-Watson statistic.

The regression results reported in Table III are
similar to those reported in Table II. Changes in m
have a statistically significant relationship to AGNP
only in the third lagged quarter, and the relation
ship is negative, while the coefficients for AB are
statistically significant in the first two quarters.
According to the beta coefficients, the response of
m to AB dominates the response to AGNP in all
quarters except the last one. The sum of the coeffi
cients indicates that over four quarters neither varia
ble exerts much influence on the money multiplier.9
Since the regression results are not consistent with
Hypothesis II, it is not confirmed.

The beta coefficients in Table II allow one to
compare directly the contribution of each variable to
variations in money in the test period.8 The beta
coefficients for AB are much larger than those for
AGNP for the contemporaneous and the first two
lagged periods, and they are about equal for the last
lagged period. Over the four quarters (measured

Another frequently postulated source of the influ
ence of economic activity on the money stock oper-

7 Read the symbol A as “change in.”
8 For an explanation of beta coefficients see: Arthur S. Goldberger, Econometric Theory, John Wiley and Sons, Inc.,
New York, December 1966, pp. 197-200.

9 This result does not imply that AGNP and AB have no
influence on any of the components which enter into the
multiplier. Instead, it implies that they have little net
effect on the multiplier.

Hypothesis III

Page 21

FEDERAL RESERVE BANK OF ST. LOUIS

ates indirectly through its influence on changes in the
monetary base. As a result, it is usually contended
that a positive relationship between movements in
GNP and in the base will be found in a regression
analysis.

AUGUST

T a b le IV

REGRESSIONS OF CHANGES IN THE
MONETARY BASE O N CHANGES IN GNP
_______A B a s e is D e p e n d e n t V a ria b le
19 5 4 -6 1

One frequently mentioned indirect channel is that
changes in GNP cause changes in some of the sources
of the monetary base, and that changes in these
sources dominate the influence of Federal Reserve
open-market purchases and sales of Government se
curities. As a result, it is contended that the monetary
base, a chief determinant of the money stock, re
sponds to economic activity. The most frequently
mentioned sources responding to changes in GNP
are borrowings from Federal Reserve Banks, the gold
stock, and Federal Reserve float.10 Another indirect
channel is that GNP influences changes in the mone
tary base through an implicit Federal Reserve re
action function involved in the formulation and im
plementation of its monetary policy. The proposition
is usually advanced that by following a money market
condition guide (market interest rates or free re
serves), Federal Reserve actions are such as to cause
pro-cyclical movements in the monetary base and
money.11
To test Hypothesis III —that the monetary base
responds in a significant manner to AGNP —current
quarter changes in the base were regressed on cur
rent quarter changes in GNP. Only contemporaneous
changes were used because such changes are most
frequently cited by those who invoke the reversecausation argument.
The test period was divided into two sub-periods,
based on two Federal Government administrations
which held different views regarding economic sta
bilization policy ( such a division is important for
testing Hypothesis IV). The first subperiod, 1/1954
to IV/1961, corresponds with the Eisenhower budget
years, during which there was a conservative view re
garding stabilization policy. The second subperiod,
1/1962 to 1/1969, corresponds with the KennedyJohnson budget years; this subperiod represents one
of active discretionary stabilization policy, particularly
the use of fiscal actions. Each subperiod was started
two quarters after the start of a new administration’s
fiscal year, allowing for a period of adjustment in
assuming full responsibility for economic stabilization.
10De Leeuw and Kalchbrenner. The argument presented in
this paper was answered by Andersen ancf Jordan in
their ‘Reply,” this Review, April 1969.
11Heller, pp. 83 and 84, and Gramley.

Page 22

1969

A
t

g np

0 .0 0 7 7 2

1 9 6 2 -6 8
A

g np

0 .0 2 4 2 8 *

1 9 5 4 -6 8
A

g n p

0 .0 3 5 6 3 *

C o n sta n t

0 .1 4 2 7 4

0 .4 6 1 1 7

0 .1 4 2 8 7

0 .0 4

0 .1 9

0 .3 5

S.E.

0.21

0 .2 5

0.31

D -W

1 .4 2

1 .4 8

1 .1 8

•Coefficients statistically significant at 5 per cent level.
N ote: Coefficients estimated using ordinary least squares technique;
S .E . is the standard error of the estimate, and D-W is the
Durbin-Watson statistic.

The Chow test indicates that there was a significant
shift in the relationship between contemporaneous
changes in GNP and the monetary base between
these two subperiods; the F-statistic for the Chow
test was 48.9, which is statistically significant beyond
the 1 per cent level.
The regression results (Table IV) indicate a posi
tive but varying relationship between contempora
neous changes in GNP and in the monetary base. A
$1 billion change in GNP is associated with an $8
million change in the monetary base in the first sub
period, and with a $24 million change in the second.
The equation explains only 4 per cent of the variance
in changes in the base in the first subperiod and 19
per cent in the second, leaving most of the variance
explained by other factors.
The regression results show a contemporaneous re
lationship between AB and AGNP, but the direction
of causation is not clear. However, the results are
consistent with Hypothesis III that the monetary base
responds to changes in GNP, implying that money
may also respond in a similar manner in contem
poraneous quarters.12

Hypothesis IV
Given the results of testing Hypothesis III, an ex
treme version of the critics’ point under examination
would imply that there should be a significant change
between these two subperiods in the response of
changes in GNP to changes in money. Hypothesis IV
is that the response of GNP to changes in money
would be greater in the second subperiod when there
12Michael Keran and Christopher Babb, “An Explanation of
Federal Reserve Actions (1 9 3 3 -6 8 )” this Review, July
1969, present empirical evidence that the channel of this
response of the monetary base is the Federal Reserve’s
reaction function, and not movements in some of the sources
of the base which are related to economic activity.

FEDERAL RESERVE BANK OF ST. LOUIS

AUGUST 1969

There is recent collaborating evidence
supporting the view that money is little
influenced by economic activity. Richard
G. Davis has recently conducted a thorough
study of the Andersen-Jordan equation.13
With regard to the reverse influence of
economic activity on money, he concludes:

T a b le V

REGRESSIONS OF CHANGES IN GNP
O N CHANGES IN M O N EY A N D
FEDERAL EXPENDITURES
______________A G N P is D ep en d en t V a ria b le ____________
1 9 5 4 -6 1
A

1 9 6 2 -6 8
A

•

2.21

0 .4 5

t-1

0 .8 3

0 .4 5

t-2

1.11

t-3

2 .2 0

Sum

6 .3 5 *

C on sta n t

2 .1 9

0 .6 7
-1 .1 2 *
0 .4 5

2 .0 8 *
-0 .2 6

1 9 5 4 -6 8
A

0 .2 3

1 .9 4 *

0 .2 6

0 .2 8

0 .2 6

0 .4 3

3 .0 8 *

-0 .1 7

2 .6 5 *

0 .6 7

-0 .4 3

0 .8 3

5 .5 7 *

-0 .0 9

5 .6 8 *

3 .8 7

0.11
-0 .6 9
0.11

2 .8 6

0 .4 8

0 .7 8

0 .7 0

S.E.

4 .6 9

2 .7 0

3 .7 2

D -W

1 .7 6

2 .4 5

1 .9 5

T h e specific variable G N P, how ever,
seems to con trib ute rath er little extra to
explaining t h e v a r i a n c e in m onetary
changes beyond w h at is explained by the
policy variables. H en ce, only a relatively
m odest p art of the gross relationship b e
tw een m oney and G N P exhibited in the
St. Louis equation m ay reflect a feedback
effect from G N P to m oney.14

David I. Fand has found that allowing
for feed-backs from the real sector to the
money stock does not materially affect the
response of the money stock to Federal
Reserve controlled variables. He examined many
money supply models which have been subjected to
statistical measurement and concludes that:

♦Coefficients statistically significant a t 5 per cent level.
N ote: Coefficients estimated using ordinary least squares technique; S .E . is the
standard error of the estimate, and D-W is the Durbin-Watson statistic.

was a greater response of the base to changes in GNP
than in the first.
Regressions of AGNP on current and lagged
changes in money and Government expenditures for
these two subperiods do not confirm this hypothesis
(Table V). The regression coefficients for current
changes in money are almost identical in both pe
riods, as are the sums of the coefficients. Moreover,
the Chow test rejects the proposition that there was
a shift in the relationship; the F-statistic equals .45
and is not statistically significant at the 5 per cent
level. Although there is support for the proposition
that the monetary base responds to changes in GNP,
variations in the strength of this relationship are not
accompanied by corresponding changes in the regres
sion coefficients relating changes in GNP to changes
in the money stock.

Conclusion
The evidence presented in this article supports the
view that changes in the money stock are dominated
by changes in the monetary base and are therefore
largely under the direct control of the Federal Re
serve. As a consequence, money may be treated as
an exogenous variable. Although evidence was pre
sented consistent with the hypothesis that there is
some response of the monetary base (the major de
terminant of the money stock) to economic activity,
this possible response does not appear to influence
in any appreciable manner regression coefficients re
lating changes in GNP to changes in money and Gov
ernment expenditures.

. . . the available evidence, m eager though it m ay
be, does not point to any superiority of M .S. IV
[fully specified feed-backs] over M .S. I [no feed
b ack s], and does not ap pear to favor a real view
over a m onetary view. Those w ho take the view th at
m oney is passive, responding to the real econom y,
have to recognize th at this is an assumption rath er
than a proposition derived from em pirical evid en ce.15

This article has presented evidence which leads to
a rejection of the extreme version of the reversecausation argument —that the money stock responds
to changes in economic activity to such an extent as
to cast considerable doubt on the validity of the St.
Louis equation. It is now incumbent upon those who
would conclude, as did one critic, that “. . . they
[Andersen-Jordan] should have concluded that some
thing was rather badly wrong about their method,”18
to produce empirical evidence supporting their con
tention of the overwhelming importance of the
reverse-causation assumption in monetary research.
'•’•Richard G. Davis, “How Much Does Money Matter?”,
Monthly Review, Federal Reserve Bank of New York, June
1969.
" Ib id ., p. 129.
15David I. Fand, “Some Implications of Money Supply Anal
ysis,” American Economic Review, May 1967, p. 392.
16Gramley, p. 7.

The above three articles are available as Reprint No. 44.
Page 23

Meat Prices
by CLIFTON B. LUTTRELL

T h e SHARP INCREASE in meat prices during
recent months reflects some reduction in the market
ing of livestock and the continued acceleration in
demand for meat. Red meat supplies dipped below
year-earlier levels in May and remained slightly
lower through June and July.1 In the absence of a
sharp increase in demand, it is unlikely that this
small decline in supply would cause such a major
rise in meat prices as we have had.
Since December 1968 average prices for red meat,
poultry, and fish have risen sharply, increasing at an
annual rate of 20 per cent, while food prices and the
consumer price index have increased at annual rates
of 7 and 6 per cent, respectively (Table I). Meat
T a b le 1

SPECIFIED PRICE CHANGES
C o m p o u n d e d A n n u a l Rates o f C h a n g e
1957/59
to
1965

1965
to
1968

Dec. 1 9 6 8
to
Ju n e 1 9 6 9
2 0 .0 %

M e a t*

0 .7 %

2 .7 %

F o o d at H om e

1 .0

2 .6

A ll Foo d

1.2

3.1

7 .2

A ll C o n su m e r Items

1.4

3 .3

6 .4

Prices P aid b y Farm ers

0 .7

2 .0

3 .7 **

Farm L a b o r C ost (p e r h ou r)

3 .2

8.4

1 0 .8 ***

Prices Received b y Farm ers
fo r Livestock Products

0 .2

3 .3

2 3 .5

7 .6

♦Includes poultry and fish.
**Ja n .-Ju n e 1968, to Ja n .-Ju n e 1969.
♦ ♦♦Average of Ja n ., April and Ju ly 1968, to average of Ja n ., April
and Ju ly 1969.
S o u r c es : USDA, A gricultu ral P rices, 1967, 1968 and 1969; F a rm
Cost S itu ation , 1963 and 1969 ; and F a r m L a b o r, 1966 and
1969. Also, U SD L, M onthly L a b o r R ev iew , Dec. 1967, and
C onsum er P rice In d ex releases.

accounts for about one-fourth of all food purchases
which, in turn, account for about one-fourth of per
sonal consumption expenditures in the nation. Con
sequently, fluctuations in meat prices have a major
impact on the consumer price index as well as on
total food costs.
Excluding the impact of the slowdown in livestock
marketing this year, recent short-run factors have
'R ed meat supplies include beef, veal, pork, and lamb and
mutton.
2Marketing year begins October 1 for com and sorghum
grain.

Page 24

generally been favorable to meat production. Weather
conditions on farms and ranches have been normal
or better. Following severe droughts, cattle herds are
restocked and fewer female cattle are sent to feedlots,
but no unusual restocking has been noted in recent
months.
Feed grain supplies are more than adequate this
year. Total feed grain supplies of 217 million tons at
the beginning of the current marketing year were
above levels of a year earlier and well above the
1962-66 average.2 Carry-over stocks at the end of
the current year are expected to total 48.5 million
tons, somewhat above average carry-over for the past
three years, but less than average for the 1962-66
period.
The current situation with respect to livestock cy
cles ( cattle and hog cycles) is also favorable to meat
production. Cattle marketings usually reach a low
point during the early phase of the herd build-up,
when large numbers of heifers are assigned to the
breeding herd. With little emphasis on herd build-up
in recent months, the cattle cycle appears favorable
to cattle marketings. Cyclical factors have also been
favorable to hog production this year.
Cattle cycles in this century have ranged in dura
tion from 9 to 16 years ( see chart below). Recent cy
cles have been shorter than earlier ones, pointing to
the possibility that improved market information and
the reduced age of marketed animals have had an

AUGUST 1969

FEDERAL RESERVE BANK OF ST. LOUIS

impact on adjustments by farm producers.
Building cow herds is a relatively slow
process compared with increasing the size
of chicken flocks or the number of breed
ing hogs. Market conditions can change
substantially between planning and achieve
ment of larger herds. This lag explains the
cattle cycle—high prices for cattle provide
incentive for farmers to increase herds; the
increased herds provide a larger beef sup
ply, causing prices to decline and, in re
sponse to lower prices, farmers begin to
reduce herds. Supply and price thus move
around equilibrium positions rather than
along equilibrium lines

T a b le II

MEAT CONSUMPTION
Com pounded
A n n u a l Rates o f C h a n g e

Total
1957/59
(Bil. Lbs.)

1965
(Bil. Lbs.)

1968
(Bil. Lbs.)

1957/59
to 1 9 6 5

1 9 6 5 to
1968

Beef a n d Veal

1 5 .3

2 0 .0

22.1

3 .9 %

3 .4 %

H ogs

10.8

11.2

12.8

0 .5

4 .6

Lam b a n d M u tton

0.8

0 .7

1.9

0 .0

Poultry

5.8

7.8

8 .9

4 .3

4 .5

TOTAL

3 2 .6

3 9 .8

4 4 .6

2 .9

3.9

Per C a p ita
( lb s . )

(Lb s.)

(L b s.)

Beef a n d Veal

8 9 .2

1 0 4 .5

1 1 3 .0

H ogs

6 3 .0

5 8 .5

6 6 .0

2 .3 %
— 1.1

2 .6 %
4.1

Lam b a n d M u tto n
4 .4
3 .7
3 .7
— 2.4
0 .0
The current cattle cycle has not followed
Fish
1 0 .5
1 0 .9
1 1 .0
0 .5
0 .3
the usual pattern. Cattle numbers turned
Poultry
3 3 .5
4 0 .8
4 5 .0
2.9
3 .3
up in 1958 and typically would have
TOTAL
2 0 0 .6
2 1 8 .4
2 3 8 .7
1.2
3 .0
reached a peak and turned down in 1963
or 1964. In 1965, however, total cattle
Source: USD A, N ation al F o o d Situ ation , May 1969 ; L iv esto ck an d M eat Situation,
March 1969 ; A gricultu ral S tatistics, 1968; and Poultry an d E g g s Situation,
numbers stabilized rather than declined
Ju n e 1969.
(see chart below). Dairy cattle declined
somewhat in each of the four succeeding years, but
tively unfavorable corn-hog price ratios is usually
the loss was largely offset by the increase in beef cat
followed by reduced pork production. Relatively fav
tle. By 1964 steer prices had declined about 20 per
orable hog prices prevailed during most of last year;
cent from 1958 levels. Nevertheless, price prospects
thus the cyclical factor was favorable for a gain in
remained sufficiently good to provide incentive for
pork output in the first half of 1969. However, the
some further beef herd enlargement. Prices of steers
actual gain was nominal, if any, and the March-May
were somewhat higher by 1965 and have generally
farrowings were down an estimated 8 per cent, well
continued up since then. To date there is no indica
below farrowing intentions and expectations based on
tion of a major change in beef cow numbers from the
earlier corn-hog price relationships. Current price re
modest uptrend of recent years. Thus, the cattle cycle
lationships, however, provide sufficient incentive for
offers no clue to the recent rise in meat prices.
some increase in planned farrowings in the autumn
months and perhaps larger pork production in 1970.
Cyclical hog patterns, likewise, offer few clues to

the recent upsurge in meat prices. A period of rela-

CATTLE ON FARMS, JANUARY 1, 1969
M IL. HEAD

lEPARTMENT OF AGRICULTURE

Accelerated Meat Demand
In recent years demand for meat has increased at
an accelerated rate. During the 1957/59-65 period
consumer purchases of meat rose from 32.6 to 39.8
billion pounds, an annual rate of 2.9 per cent, and
prices rose 0.7 per cent per year (Tables I and II).
In the 1965-68 period consumption rose from 39.8 to
44.6 billion pounds, an annual rate of 3.9 per cent,
and prices rose at an annual rate of 2.7 per cent.
Despite a more rapid increase in price, pounds of
meat consumed rose at a faster rate during the latter
period, which indicates an accelerating increase in
total demand. Meat consumption per person averaged
201 pounds in 1957-59, 218 pounds in 1965, and 239
pounds in 1968. The annual rates of increase were
1.2 per cent from the late 1950’s to 1965 and 3 per
cent since 1965.
Page 25

AUGUST 1969

FEDERAL RESERVE BANK OF ST. LOUIS

The accelerated increase in demand for meat in
the 1965-68 period has apparently continued in 1969.
Output of red meat during the five months January
through May was 1 per cent above output in the
same months a year earlier. Poultry output was up
about 6 per cent and meat imports were up 4 per
cent during the January-April months.3 Total meat
supplies were up almost 2 per cent, as poultry pro
duction and meat imports account for about 20 and
5 per cent respectively of total meat supply. Despite
the increased supply, prices averaged 4.3 per cent
above year-earlier levels. The fact that meat produc
tion this year rose at a somewhat slower rate than in
the 1965-68 period, while prices rose faster, indicates
the continued willingness of consumers to purchase
larger quantities of meat at higher prices.
A shift in consumer preference to beef from other
types of meat was a factor tending to increase the
price of meat in the 1957/59-65 period. Beef and
veal constituted 47 per cent of all meat consumed
in the 1957/59 base period and 50 per cent in 1965.
Since 1965 the proportion of beef to total meat con
sumed has remained fairly stable. Beef prices have
historically averaged somewhat higher than pork.
During the years 1964-68 inclusive, the retail price
per pound of choice beef averaged $0.83 and veal
$0.90, while pork averaged $0.66. These price dif
ferences reflect the higher production costs of beef
and veal compared with pork.

Increasing Meat Output
During the years 1957/59-65 stable prices provided
meat producers sufficient incentive to market a larger
quantity of meat in successive years. Total meat and
poultry production rose from 32.6 to 39.7 billion
pounds, an annual rate of 2.9 per cent (Table III).
Imports accounted for a small but increasing portion
of the total supply, averaging 1.0 billion pounds in
1957/59 and totaling 1.3 billion pounds in
1965. During the period 1965-68 production
T a b le III
rose from 39.7 to 44.0 billion pounds (an
annual rate of 3.5 per cent), imports rose
from 1.3 to 2.1 billion pounds, and farm
prices for livestock products rose at the rate
of 3.3 per cent.
During the years 1957/59-65 each in
crease in demand intersected the supply
curve at a relatively stable price, indicating
a long-run horizontal supply curve at these

rates of increase in demand (see the Consumer Price
chart above). New meat production technology offset
the impact on production costs of the higher prices
paid by farmers for production items. Reflecting the
generally rising demand for factors of production, farm
wage rates rose 3.2 per cent per year and prices paid
by farmers for other production inputs rose at the rate
of 0.7 per cent. Although most farm operators are also
farm workers, alternative opportunities foregone for
earning labor income are a cost to the operator.
After 1965 the supply curve for meat apparently
changed from horizontal to upward sloping, so that
successive increases in demand from 1965 to 1968
intersected the supply curve at higher average price
levels. Prices rose 2.7 per cent per year in this period
in contrast to almost stable prices in the earlier pe
riod. The uptrend in prices of farm inputs quickened
as a result of excessive demand in resource markets.
Farm wages rose at the annual rate of 8.4 per cent
and prices of other farm inputs at a 2.0 per cent rate.
Costs to fanners were rising at a faster rate than

MEAT PRODUCTION
Com pounded
A n n u a l Rates of C h a n g e

T ota l
1957/59
(Bil. Lbs.)

1965
(B il. Lbs.)

1968
(Bil. Lbs.)

Beef a n d V e a l

1 4 .9

1 9 .7

H ogs

1 1 .0

11.1

0 .7

Lam b a n d M u tton

1957/59
to 1 9 6 5

1 9 6 5 to
1968

2 1 .4

4 .1 %

2 .8 %

1 2 .9

0.1

5.1

0 .6

0 .0

-5 .0

Poultry

5 .9

8.2

9.1

4 .8

3.5

TOTAL

3 2 .6

3 9 .7

4 4 .0

2 .9

3 .5

S o u rce: USDA, N atio n a l F o o d S itu ation , May 1968; L iv esto ck an d M eat Situation,
March 1969 ; and Poultry an d E g g s S itu ation , Ju n e 1969.

3USDA, Agriculture Outlook Digest, July 1969.
Page 26

FEDERAL RESERVE BANK OF ST. LOUIS

efficiency in meat production. Producers faced with a
rising marginal cost curve found it profitable to pro
duce the quantitites demanded by consumers only at
higher price levels.
The slope of the supply curve may have steepened
this year. As indicated earlier, meat output from
January through May was up 2 per cent from the
same period a year ago. Prices to producers for live
stock products rose at an annual rate of 23.5 per cent
from December through June. Both beef cattle and
hog prices rose at rates in excess of 50 per cent per
year and chickens rose at a 30 per cent rate. Factor
costs to farmers continued to increase sharply. Wage
rates paid in early 1969 were 11 per cent above year
ago levels, and other prices paid were 4 per cent
higher.

Prices
Although underlying price-making forces in the
meat industry have increased as a result of the gen
eral price inflation since December, they have risen
at a much slower rate than meat animal prices. This
wider spread between costs and prices received by
producers indicates that short-run prices for meat
animals may be above the long-run equilibrium price
and that current prices provide incentive for some
expansion of meat production.
As indicated earlier, part of the recent increase in
meat animal prices reflects reduced supplies resulting
from irregular marketing of livestock. Marketings
were down somewhat in May, June, and early July
from year-earlier levels. This reduction in slaughter
does not reflect a decline in long-run incentive to
produce. Livestock marketings are expected to be up
this fall. On July 1, cattle on feed in major feeding
states were up 15 per cent from a year ago. Beef
supplies are expected to be 11 per cent greater dur
ing the July-September period. Hog marketings in
the second half of 1969 may be down about 2 per
cent from a year ago, but an increase in summer and
fall farrowings points to larger pork supplies in early
1970. Marketings of poultry throughout the rest of
1969 are expected to be larger than a year ago.
The number of basic breeding animals has not been
significantly increased to date. Such increases, how
ever, usually occur only after a time lapse.
Meat prices since 1957/59 have been maintained
above equilibrium levels by government restraints on
both domestic feed grain crops and imports of meat.
Import restrictions provide for quotas when yearly
imports of meat exceed 110 per cent of an adjusted

AUGUST 1969

base quota. Although these quotas have been invoked
infrequently, if at all, the threat of quota restrictions
has probably served to restrain meat imports.
The objective of the Feed Grain Program is to
divert acreage from feed production to other uses in
order to restrict supplies. About 37 million acres
were diverted from feed grain use through the pro
gram this year. Farmers are provided incentive to
participate in the program, both through government
price supports for feed grain crops and through
acreage diversion payments.
These programs, which tend to be inflexible, may
have retarded the response of producers to the higher
meat prices in recent years. Import controls also have
had their impact primarily since 1965. Meat imports
have averaged somewhat greater since 1965 than in
the 1957/59-65 period. On the other hand, without
the threat of quota restrictions, larger imports might
have retarded the rate of increase in meat prices.

Summary
Sharply higher meat prices have been an important
factor in consumer price increases since December
1968. Part of the rise in meat prices in late May and
June reflects irregular marketings of livestock. Mar
ketings from May through July were down slightly
from year-earlier levels. The greater portion of cattle
marketings for 1969 will apparently occur in the sec
ond half of the year. With little meat kept in storage,
the gap in livestock marketed in the late spring and
early summer probably resulted in livestock prices
well above the longer-run trend. With larger meat
marketings in prospect for the second half, meat
prices may be below the long-run trend.
Not all of the recent increase can be attributed to
marketing irregularities or short-run cyclical factors.
The long-run trend in prices for 1965-68 probably con
tinued this year at an accelerated rate.
Demand for meat has increased more rapidly in
recent years than in the early 1960’s. The high rate
of increase in demand for meat has continued in
1969. While demand was increasing at a slower rate
in the early 1960’s, efficiencies in production were
sufficient to offset rising factor costs. Major efficiency
gains have continued, but due to such demand factors
as general price inflation and rising consumer prefer
ence for meat, prices have continued to increase.
Recent movements in meat prices could be consid
ered as a catching-up process. Meat prices have in
creased less than all consumer items since 1957/59.
Page 27

FEDERAL RESERVE BANK OF ST. LOUIS

Excessive demand for all goods and services has,
however, penetrated the farm cost structure and, with
a time lag, prices in agriculture must adjust to the
created excesses.
Government crop production control programs and
meat import quotas have contributed to higher meat
prices. The crop programs have maintained feed
prices above free market levels, and the quotas have
inhibited imports, tending to retard meat supply in
creases in response to the higher prices.
When demand for all goods and services is re
duced, equilibrium meat prices will probably stabilize

AUGUST 1969

along with other prices. Demand for meat will prob
ably continue to rise after general price inflation
subsides, but at a slower rate than in recent years.
Some of the underlying meat production costs will
also stabilize and efficiency growth will offset the
rising costs. Part of the recent meat price gains, how
ever, may represent a further upward adjustment in
returns to resources in agriculture, bringing such re
turns closer to equality with returns to resources in
other sectors of the economy. To the extent that higher
returns are necessary to attract resources into agricul
ture, no major reduction in meat prices relative to
other prices is in prospect.

Publications of This Bank Include:
Weekly

U. S. FINANCIAL DATA

Monthly

REVIEW
MONETARY TRENDS
NATIONAL ECONOMIC TRENDS
SELECTED ECONOMIC INDICATORS - CENTRAL
MISSISSIPPI VALLEY

Quarterly

FEDERAL BUDGET TRENDS
U. S. BALANCE OF PAYMENTS TRENDS
TRIANGLES OF U. S. ECONOMIC DATA
GROSS NATIONAL PRODUCT

Annually

TRIANGLES OF U. S. ECONOMIC DATA
RATES OF CHANGE IN ECONOMIC DATA
FOR TEN INDUSTRIAL COUNTRIES
(QUARTERLY SUPPLEMENT)

Copies of these publications are available to the public without charge, including
bulk mailings to banks, business organizations, educational institutions, and others.
For information write: Research Department, Federal Reserve Bank o f St. Louis,
P. O. Box 442, St. Louis, Missouri 63166.

Page 28