MonetaryTrends November 2009

Home Prices: A Case for Cautious Optimism

T
he July 2009 release of the Case-Shiller Composite-10 Index 2009. In a study that includes 64 percent of all outstanding U.S.
(CSXR) showed that home prices were up 1.36 percent from mortgages, the Office of the Comptroller of the Currency and the
the previous month and 2.2 percent from their low in May Office of Thrift Supervision report that serious delinquencies (at least
2009. According to the index, average U.S. home prices are compa- 60 days delinquent) increased by 11.5 percent from the previous quar-
rable to their levels in the autumn of 2003—a decline of 33.5 per- ter.4 On the other hand, home retention actions (including loan modi-
cent from their peak in the second quarter of 2006. The recent gain fications and payment plans) initiated under the “Making Home
was widespread—9 of the 10 cities in the CSXR reported increases, Affordable” program rose 21.7 percent over the first quarter. This in
with Las Vegas the only exception. Nationwide, housing starts and turn kept the number of newly initiated foreclosures stable despite ris-
building permits increased 1.5 percent to 598,000 and 2.8 percent ing delinquencies. However, another cause for concern is the number
to 580,000, respectively, to their highest level since November 2008. of rising delinquencies on particular mortgage products such as Alt-A
The chart plots three monthly data series related to house prices loans (particularly those with 5-year teaser rates) and payment-option
and median household income between January 1990 and July 2009. adjustable-rate mortgages. The concern here is that these products
Two of them are monthly home price indices: the CSXR and the might bring about a second wave of foreclosures, thereby leading to a
house price index released by the Federal Housing Finance Agency further decline in home prices.
(FHFA).1 The third series is the House Affordability Index of
—Rajdeep Sengupta and Yu Man Tam
Median Household Income published by the National Association
of Realtors.2 The base of all three indices is January 1991. During 1 For a discussion of how the two indices compare with each other, see Aubuchon,

the early 1990s, home prices rose somewhat slower than mean Craig P. and Wheelock, David C. “How Much Have U.S. House Prices Fallen?”
household income. However, after 1997 home prices rose sharply Federal Reserve Bank of St. Louis National Economic Trends, August 2008;
http://research.stlouisfed.org/publications/net/20080801/cover.pdf.
to their peak in mid-2006 before dropping precipitously. Meanwhile,
2 See http://www.realtor.org/research/research/hameth for details.
the affordability index grew at a much slower but more persistent
3 Board of Governors of the Federal Reserve System. Press release, November 28,
rate. While the recent data suggest that home prices have stabilized,
both home price indices remain well above the affordability index 2008; www.federalreserve.gov/newsevents/press/monetary/20081125b.htm.
4 The OCC and OTS Mortgage Metrics Report covers all types of first-lien mort-
of median household income.
Many analysts are cautiously optimistic that the house price gages serviced by most large mortgage providers
(see www.occ.treas.gov/ftp/release/2009-118a.pdf).
decline has ended, citing that house prices increased in June
and July. There are several reasons for being cautious. First,
the government is currently providing significant support
Index: 1999:01 = 100
to the mortgage market. On the demand side, the American
Recovery and Reinvestment Act of 2009 authorizes a tax 350

credit of up to $8,000 for qualified first-time home buyers

purchasing a principal residence between January 1, 2009, 300
and November 30, 2009. With the tax credit due to expire
by the end of November, it will be important to see if the 250
demand for housing can be sustained after it expires. On
the supply side, the Federal Reserve is purchasing up to
200
$1.25 trillion of agency mortgage-backed securities through
a program that began in January 2009 and continues
150
through the first quarter of 2010. The aim is to “reduce the
cost and increase the availability of credit for the purchase
of houses, which in turn should support housing markets 100
and foster improved conditions in financial markets more
NAR Housing Affordability Index of Median Household Income
generally.”3 In light of this, it remains unclear how the hous- 50
Case-Shiller Home Price Index (CSXR)
ing market will perform in the absence of these govern- FHFA Home Price Index (Purchase Only)
ment measures. 0
Meanwhile, the number of mortgage delinquencies and 1989:01 1993:01 1997:01 2001:01 2005:01 2009:01
foreclosures in process rose during the second quarter of

Views expressed do not necessarily reflect official positions of the Federal Reserve System.

research.stlouisfed.org
 Contents
Page
3 Monetary and Financial Indicators at a Glance
4 Monetary Aggregates and Their Components
6 Monetary Aggregates: Monthly Growth
7 Reserves Markets and Short-Term Credit Flows
8 Measures of Expected Inflation
9 Interest Rates
10 Policy-Based Inflation Indicators
11 Implied Forward Rates, Futures Contracts, and Inflation-Indexed Securities
12 Velocity, Gross Domestic Product, and M2
14 Bank Credit
15 Stock Market Index and Foreign Inflation and Interest Rates
16 Reference Tables
18 Definitions, Notes, and Sources

Conventions used in this publication:

1. Unless otherwise indicated, data are monthly.
2. Except where otherwise noted, solid shading indicates recessions, as determined by the National Bureau of Economic
Research. The NBER has not yet determined the end of the recession that began in December 2007; however, the hatched
shading shows that the recession ended in July 2009. We made this determination based on a statistical model for dating
business cycle turning points developed by Marcelle Chauvet and Jeremy Piger (“A Comparison of the Real-Time
Performance of Business Cycle Dating Methods,” Journal of Business and Economic Statistics, 2008, 26, 42-49).
For more information, see http://www.uoregon.edu/~jpiger/us_recession_probs.htm.
3. Percent change at an annual rate is the simple, not compounded, monthly percent change multiplied by 12. For
example, using consecutive months, the percent change at an annual rate in x between month t –1 and the current
month t is: [(xτ /x τ – 1 )–1] × 1200. Note that this differs from National Economic Trends. In that publication, monthly
percent changes are compounded and expressed as annual growth rates.
4. The percent change from year ago refers to the percent change from the same period in the previous year. For example,
the percent change from year ago in x between month t –12 and the current month t is: [(xτ /x τ – 12 )–1] × 100.

We welcome your comments addressed to:

Editor, Monetary Trends On March 23, 2006, the Board of Governors of the
Research Division Federal Reserve System will cease the publication of the
Federal Reserve Bank of St. Louis M3 monetary aggregate. It will also cease publishing the
P.O. Box 442 following components: large-denomination time deposits,
St. Louis, MO 63166-0442 RPs, and eurodollars.

or to:
[email protected]

Monetary Trends is published monthly by the Research Division of the Federal Reserve Bank of St. Louis. Visit the Research Division’s website at research.stlouisfed.org/publications/mt to
download the current version of this publication or register for e-mail notification updates. For more information on data in the publication, please visit research.stlouisfed.org/fred2 or call
(314) 444-8590.
updated through
10/20/09 Monetary Trends

M2 and MZM Treasury Yield Curve

Billions of dollars Percent
10000 4.8
Week Ending Friday:
10/17/08
9500 09/18/09
10/16/09
4.3
9000 MZM

3.8
8500

8000
3.3
M2
7500
2.8
7000

6500 2.3
5y 7y 10y 20y
2006 2007 2008 2009
2006 2007 2008 2009 2010

Adjusted Monetary Base Real Treasury Yield Curve

Percent change at an annual rate Percent
400 4.0
Week Ending Friday:
10/17/08
3.5 09/18/09
300 10/16/09

3.0
200

2.5
100
2.0

0
1.5

-100
1.0

-200 0.5
5y 7y 10y 20y
2006 2007 2008 2009
2006 2007 2008 2009 2010

Reserve Market Rates Inflation-Indexed Treasury Yield Spreads

Percent
Percent
8
Effective Federal Funds Rate 2.4
Week Ending Friday:
Intended Federal Funds Rate 10/17/08
7
09/18/09
Primary Credit Rate
10/16/09
6
1.8

4
1.2

2
0.6

0
0.0
2006 2007 2008 2009 5y 7y 10y 20y
2006 2007 2008 2009 2010

Note: Effective December 16, 2008, FOMC reports the

intended Federal Funds Rate as a range.

Research Division
Federal Reserve Bank of St. Louis 3
 updated through
Monetary Trends 10/20/09

MZM and M1
Percent change from year ago
25
20
15
10
MZM
5
0
M1
-5
-10
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

M2
Percent change from year ago
15

10

-5
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

M3*
Percent change from year ago
15

10

-5
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
*See table of contents for changes to the series.

Monetary Services Index - M2**

Percent change from year ago
15

10

-5
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
**We will not update the MSI series until we revise the code to accomodate the discontinuation of M3.

Research Division
4 Federal Reserve Bank of St. Louis
updated through
10/20/09 Monetary Trends

Adjusted Monetary Base

Percent change from year ago
120
100
80
60
40
20
0
-20
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Domestic Nonfinancial Debt Currency Held by the Nonbank Public

Percent change from year ago Percent change from year ago
40 15

30
10
20

Total
10
5
Federal
0

-10 0
2002 2003 2004 2005 2006 2007 2008 2009 2006 2007 2008 2009
2002 2003 2004 2005 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

Small Denomination Time Deposits* Checkable and Savings Deposits

Percent change from year ago Percent change from year ago
30 40

30
20 Checkable
20
10 Savings
10

0
0

-10 -10
2006 2007 2008 2009 2006 2007 2008 2009
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

Money Market Mutual Fund Shares Repurchase Agreements and Eurodollars*

Percent change from year ago Billions of dollars Billions of dollars
60 600 500
Repos (left)
45
550 450
Institutional Funds
30 Eurodollars (right)
500 400
15
Retail Funds
450 350
0

-15 400 300

2006 2007 2008 2009 2005 2006 2007 2008
2006 2007 2008 2009 2010
*See table of contents for changes to these series.

Research Division
Federal Reserve Bank of St. Louis 5
 updated through
Monetary Trends 10/20/09

M1
Percent change at an annual rate
80
60
40
20
0
-20
-40
-60
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

MZM
Percent change at an annual rate
50
40
30
20
10
0
-10
-20
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

M2
Percent change at an annual rate
30

20

10

-10
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

M3*
Percent change at an annual rate
30

20

10

-10
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
*See table of contents for changes to the series.

Research Division
6 Federal Reserve Bank of St. Louis
updated through
10/20/09 Monetary Trends

Adjusted and Required Reserves

Billions of dollars
1000

750

500

Required
250 ||
Adjusted |
|
0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Total Borrowings, nsa Excess Reserves plus RCB Contracts

Billions of dollars Billions of dollars
450 1000
400
350 800
300
600
250
200
400
150
100 200
50
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2002 2003 2004 2005 2006 2007 2008 2009
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
* Data exclude term auction credit

Nonfinancial Commercial Paper

Percent change from year ago
60

40

20

-20

-40

-60
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
As of April 10, 2006, the Federal Reserve Board made major changes to its commercial paper calculations.
For more information, please refer to http://www.federalreserve.gov/releases/cp/about.htm.

Consumer Credit
Percent change from year ago
20

15

10

-5

-10
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Research Division
Federal Reserve Bank of St. Louis 7
 updated through
Monetary Trends 10/20/09

CPI Inflation and 1-Year-Ahead CPI Inflation Expectations

Percent
6

5
Humphrey-Hawkins CPI Inflation Range
4

2 |
|
CPI Inflation |
1 |
|
|
University of |
|
0 |
Michigan |
|
|
-1 Federal Reserve Bank
of Philadelphia
-2
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

The shaded region shows the Humphrey-Hawkins CPI inflation range. Beginning in January 2000, the Humphrey-Hawkins inflation range was reported
using the PCE price index and therefore is not shown on this graph.

10-Year Ahead PCE Inflation Expectations and Realized Inflation

Percent

2
Realized Expected

0
65 70 75 80 85 90 95 00 05

See the notes section for an explanation of the chart.

Treasury Security Yield Spreads Real Interest Rates

Yield to maturity Percent, Real rate = Nominal rate less year-over-year CPI inflation
6 6

10-Year less 3-Month T-Bill

4
4

2
1-Year Treasury Yield
2

0 |
| | -2
| |
| | Federal Funds Rate
10-Year less 3-Year Note 3-Year less 3-Month T-Bill
-2 -4
00 01 02 03 04 05 06 07 08 09 00 01 02 03 04 05 06 07 08 09
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Research Division
8 Federal Reserve Bank of St. Louis
updated through
10/20/09 Monetary Trends

Short-Term Interest Rates

Percent
12
10
8
Prime Rate 90-Day Commercial Paper
6
4
3-Month Treasury Yield
2
0
-2
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Long-Term Interest Rates

Percent
10

Conventional Mortgage
8

|
6 |
|
|
|
4 |
Corporate Aaa
10-Year Treasury Yield
2
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Long-Term Interest Rates Short-Term Interest Rates

Percent Percent
10 6
90-Day Commercial Paper

8 4
Corporate Baa
3-Month
6 2
Treasury Yield

4 0

10-Year Treasury Yield

2 -2
2006 2007 2008 2009 2006 2007 2008 2009
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
*90-Day Commercial Paper data are not available for December
2005, January 2006, and July 2006.

FOMC Intended Federal Funds Rate, Discount Rate, and Primary Credit Rate
Percent
8
Intended Federal
Funds Rate
6
Primary Credit
Rate
Discount Rate
4

0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Research Division
Federal Reserve Bank of St. Louis 9
 updated through
Monetary Trends 10/20/09

Federal Funds Rate and Inflation Targets

Percent
10
4% 3% 2% 1% 0% Target Inflation Rates

Actual
0

-5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Calculated federal funds rate is based on Taylor's rule.

Components of Taylor's Rule

Actual and Potential Real GDP PCE Inflation
Billions of chain-weighted 2005 dollars Percent change from year ago
15000 5

Potential 4

13000 3
Actual
2

11000 1

9000 -1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
See notes section for further explanation.

Monetary Base Growth and Inflation Targets

Percent
30
25
20
Actual Target Inflation Rates 0% 1% 2% 3% 4%
15
10
5
0
-5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
00 01 02 03 04 05 06 07 08 09 10
Calculated base growth is based on McCallum's rule. Actual base growth is percent change from the previous quarter
*Actual values for 2008:Q4 and 2009:Q1 are 188.38 percent and 60.77 percent, respectively.

Components of McCallum's Rule

Monetary Base Velocity Growth Real Output Growth
Percent Percent
15 7.5
Recursive Average
0 | 5.0 10-Year
Moving Average
-15 2.5

-30 0.0

-45 -2.5
1-Year Quarter to Quarter
Moving Average Growth Rate
-60 -5.0

-75 -7.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
00 01 02 03 04 05 06 07 08 09 10 00 01 02 03 04 05 06 07 08 09 10

Research Division
10 Federal Reserve Bank of St. Louis
 updated through
10/20/09 Monetary Trends

Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures

Percent Percent, daily data
7 0.65
Week Ending: Dec 2009
10/17/08
6 09/18/09
10/16/09 0.55
5
Nov 2009
4 0.45 |
|
|
3 Oct 2009
0.35
2

1 2y 3y 5y 7y 10y
0.25

08/17 08/24 08/31 09/07 09/14 09/21 09/28 10/05 10/12 10/19

Rates on Selected Rates on Federal Funds Futures

Federal Funds Futures Contracts on Selected Dates
Percent, daily data Percent
0.24 0.30
Dec 2009
Nov 2009 08/14/2009
0.20 | 0.24
|

Oct 2009
09/11/2009
0.16 0.18

10/16/2009
0.12 0.12

08/17 08/24 08/31 09/07 09/14 09/21 09/28 10/05 10/12 10/19 Oct Nov Dec Jan Feb Mar
Contract Month

Inflation-Indexed Treasury Securities Inflation-Indexed Treasury Yield Spreads

Weekly data Weekly data

Percent Percent

4.00 4.00

2.67 1.67

1.33 -0.67
20 20
15 15
0.00 -3.00
2007 10 Maturity 2007 10 Horizon
2008 2008
2009 5 2009 5
. 2010 . 2010
Note: Yields are inflation-indexed constant maturity Note: Yield spread is between nominal and inflation-indexed
U.S. Treasury securities constant maturity U.S. Treasury securities.

Inflation-Indexed Inflation-Indexed
10-Year Government Notes 10-Year Government Yield Spreads
Percent, weekly data Percent, weekly data
5 4
U.K.
4
2 |
|
3 | France
U.K. U.S.
| U.S.
2 |
|
0
1
France
0 -2
2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010

Research Division
Federal Reserve Bank of St. Louis 11
 updated through
Monetary Trends 10/20/09

Velocity
Nominal GDP/MZM, Nominal GDP/M2 (Ratio Scale)
2.75

2.50
MZM
2.25

2.00
M2

1.75

1.50

1.25
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
11688 12054 12419 12784 13149 13515 13880 14245 14610 14976 15341 15706 16071 16437 16802 17167 17532 17898 18263

Interest Rates
Percent
8

3-Month T-Bill
4
M2 Own

2
MZM Own

0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
11688 12054 12419 12784 13149 13515 13880 14245 14610 14976 15341 15706 16071 16437 16802 17167 17532 17898 18263

MZM Velocity and Interest Rate Spread M2 Velocity and Interest Rate Spread
Ratio Scale Ratio Scale

3.50 2.25
Velocity = Nominal GDP / MZM

Velocity = Nominal GDP / M2

3.00 2.00

2.50 1.75

2.00 1.50

1974Q1 to 1993Q4 1974Q1 to 1993Q4

1994Q1 to present 1994Q1 to present
1.25
1.50

0 1 2 3 4 5 6 7 8 9 10 11 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0
Interest Rate Spread = 3-Month T-Bill less MZM Own Rate Interest Rate Spread = 3-Month T-Bill less M2 Own Rate

Research Division
12 Federal Reserve Bank of St. Louis
updated through
10/20/09 Monetary Trends

Gross Domestic Product

Percent change from year ago
10
8
6

4
2
0

-2
-4
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Dashed lines indicate 10-year moving averages.

Real Gross Domestic Product

Percent change from year ago
6

-3

-6
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Dashed lines indicate 10-year moving averages.

Gross Domestic Product Price Index

Percent change from year ago
5

0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Dashed lines indicate 10-year moving averages.

M2
Percent change from year ago
12

0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Dashed lines indicate 10-year moving averages.

Research Division
Federal Reserve Bank of St. Louis 13
 updated through
Monetary Trends 10/20/09

Bank Credit
Percent change from year ago
20

15

10

-5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Investment Securities in Bank Credit at Commercial Banks

Percent change from year ago
20

15

10

-5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Total Loans and Leases in Bank Credit at Commercial Banks

Percent change from year ago
20

15

10

-5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Commercial and Industrial Loans at Commercial Banks

Percent change from year ago
30

15

-15
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Research Division
14 Federal Reserve Bank of St. Louis
updated through
10/20/09 Monetary Trends

Standard & Poor's 500

1800 150

1440 120

Composite Index
(left)
1080 90

720 60
Price/Earnings Ratio
(right)

360 30

0 0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Recent Inflation and Long-Term Interest Rates

Consumer Price Long-Term
Inflation Rates Government Bond Rates
Percent change from year ago Percent
2008Q4 2009Q1 2009Q2 2009Q3 Jun09 Jul09 Aug09 Sep09
United States 1.53 -0.18 -0.94 -1.55 3.72 3.56 3.59 3.40
Canada 1.91 1.25 0.06 . 3.47 3.42 3.47 3.37
France 1.76 0.63 -0.21 . 3.90 3.73 3.58 .
Germany 1.65 0.82 0.25 . 3.47 3.34 3.31 3.26
Italy 2.80 1.48 0.85 0.12 4.61 4.37 4.12 .
Japan 1.03 -0.10 -0.98 . 1.36 1.39 1.31 .
United Kingdom 3.88 3.01 2.12 . 3.72 3.82 3.71 3.66
* Copyright , 2009, Organisation for Economic Cooperation and Development, OECD Main Economic Indicators (www.oecd.org).

Inflation and Long-Term Interest Rate Differentials

Percent Percent
2 4

Germany
2
0
Canada U.K. U.K.

-2 Japan
Germany
-2
Canada
Inflation differential = Foreign inflation less U.S. inflation
Long-term rate differential = Foreign rate less U.S. rate Japan
-4 -4
2006 2007 2008 2009 2006 2007 2008 2009
01/01/2006 01/01/2007 01/01/2008 01/01/2009 01/01/2010 01/01/2006 01/01/2007 01/01/2008 01/01/2009 01/01/2010

Research Division
Federal Reserve Bank of St. Louis 15
 updated through
Monetary Trends 10/20/09

Money Stock Bank Adjusted

M1 MZM M2 M3* Credit Monetary Base Reserves MSI M2**

2004. 1344.401 6569.679 6262.679 9234.718 6339.387 776.768 96.130 329.873

2005. 1371.751 6707.775 6527.248 9786.477 6986.233 806.628 96.560 343.539
2006. 1374.358 6998.369 6856.042 10270.74 7659.746 835.039 94.913 .
2007. 1373.207 7632.049 7251.158 . 8403.538 850.565 94.182 .
2008. 1429.042 8698.672 7748.994 . 9104.870 1009.814 232.217 .

2007 1 1369.341 7289.108 7097.940 . 8129.742 846.309 94.123 .

. 2 1376.333 7467.984 7200.443 . 8246.613 849.917 93.536 .
. 3 1371.420 7722.863 7300.125 . 8475.331 852.247 95.410 .
. 4 1375.734 8048.240 7406.125 . 8762.465 853.787 93.658 .

2008 1 1380.439 8384.159 7560.830 . 8974.244 856.300 96.153 .

. 2 1387.174 8667.178 7667.286 . 8991.919 859.394 94.440 .
. 3 1417.516 8763.332 7745.460 . 9062.935 892.824 117.901 .
. 4 1531.037 8980.018 8022.401 . 9390.382 1430.738 620.374 .

2009 1 1566.478 9403.718 8273.334 . 9303.134 1663.074 820.756 .

. 2 1611.979 9555.768 8329.859 . 9310.169 1763.765 917.192 .
. 3 1655.195 9583.543 8332.265 . 9188.509 1747.166 895.359 .

2007 Sep 1371.973 7850.509 7341.583 . 8585.166 851.463 94.991 .

. Oct 1379.222 7963.122 7374.220 . 8692.417 856.426 93.493 .

. Nov 1374.972 8057.383 7405.317 . 8764.139 857.480 95.722 .
. Dec 1373.009 8124.214 7438.839 . 8830.840 847.454 91.758 .

2008 Jan 1377.414 8204.131 7488.190 . 8922.886 851.405 95.043 .

. Feb 1380.574 8403.584 7565.327 . 8970.963 856.964 96.211 .
. Mar 1383.330 8544.761 7628.973 . 9028.882 860.532 97.205 .

. Apr 1383.980 8614.811 7650.054 . 8971.126 855.222 94.350 .

. May 1383.770 8671.288 7669.845 . 9002.545 859.920 95.142 .
. Jun 1393.771 8715.434 7681.958 . 9002.086 863.041 93.827 .

. Jul 1409.317 8766.530 7726.867 . 9016.310 870.771 97.074 .

. Aug 1391.659 8736.351 7699.561 . 9014.391 871.530 96.736 .
. Sep 1451.572 8787.114 7809.953 . 9158.103 936.171 159.892 .

. Oct 1474.699 8830.304 7929.177 . 9491.948 1142.202 347.655 .

. Nov 1523.164 8945.365 7982.133 . 9360.613 1480.759 674.088 .
. Dec 1595.249 9164.385 8155.894 . 9318.586 1669.254 839.379 .

2009 Jan 1576.451 9339.366 8235.858 . 9297.650 1730.463 870.226 .

. Feb 1559.675 9394.505 8258.690 . 9316.522 1590.250 758.672 .
. Mar 1563.307 9477.283 8325.455 . 9295.230 1668.510 833.371 .

. Apr 1592.762 9464.545 8272.304 . 9257.000 1787.802 949.439 .

. May 1595.428 9583.633 8342.769 . 9340.318 1799.371 946.283 .
. Jun 1647.748 9619.127 8374.503 . 9333.189 1704.123 855.854 .

. Jul 1653.550 9615.867 8356.813 . 9256.749 1693.703 841.446 .

. Aug 1649.848 9552.001 8305.456 . 9199.013 1728.114 879.512 .
. Sep 1662.187 9582.762 8334.527 . 9109.766 1819.681 965.119 .

Note: All values are given in billions of dollars. *See table of contents for changes to the series.
**We will not update the MSI series until we revise the code to accommodate the discontinuation of M3.

Research Division
16 Federal Reserve Bank of St. Louis
updated through
10/20/09 Monetary Trends

Federal Primary Prime 3-mo Treasury Yields Corporate Municipal Conventional

Funds Credit Rate Rate CDs 3-mo 3-yr 10-yr Aaa Bonds Aaa Bonds Mortgage

2004. 1.35 2.34 4.34 1.56 1.40 2.78 4.27 5.63 4.50 5.84
2005. 3.21 4.19 6.19 3.51 3.21 3.93 4.29 5.23 4.28 5.86
2006. 4.96 5.96 7.96 5.15 4.85 4.77 4.79 5.59 4.15 6.41
2007. 5.02 5.86 8.05 5.27 4.47 4.34 4.63 5.56 4.13 6.34
2008. 1.93 2.39 5.09 2.97 1.39 2.24 3.67 5.63 4.58 6.04

2007 1 5.26 6.25 8.25 5.31 5.12 4.68 4.68 5.36 3.91 6.22
. 2 5.25 6.25 8.25 5.32 4.87 4.76 4.85 5.58 4.13 6.37
. 3 5.07 5.93 8.18 5.42 4.42 4.41 4.73 5.75 4.27 6.55
. 4 4.50 5.02 7.52 5.02 3.47 3.50 4.26 5.53 4.24 6.23

2008 1 3.18 3.67 6.21 3.23 2.09 2.17 3.66 5.46 4.39 5.88
. 2 2.09 2.33 5.08 2.76 1.65 2.67 3.89 5.60 4.43 6.09
. 3 1.94 2.25 5.00 3.06 1.52 2.63 3.86 5.65 4.50 6.31
. 4 0.51 1.31 4.06 2.82 0.30 1.48 3.25 5.82 5.02 5.87

2009 1 0.18 0.50 3.25 1.08 0.22 1.27 2.74 5.27 4.64 5.06
. 2 0.18 0.50 3.25 0.62 0.17 1.49 3.31 5.51 4.43 5.03
. 3 0.16 0.50 3.25 0.30 0.16 1.56 3.52 5.27 4.11 5.16

2007 Sep 4.94 5.53 8.03 5.46 3.99 4.06 4.52 5.74 4.26 6.38

. Oct 4.76 5.24 7.74 5.08 4.00 4.01 4.53 5.66 4.20 6.38
. Nov 4.49 5.00 7.50 4.97 3.35 3.35 4.15 5.44 4.26 6.21
. Dec 4.24 4.83 7.33 5.02 3.07 3.13 4.10 5.49 4.25 6.10

2008 Jan 3.94 4.48 6.98 3.84 2.82 2.51 3.74 5.33 4.13 5.76
. Feb 2.98 3.50 6.00 3.06 2.17 2.19 3.74 5.53 4.42 5.92
. Mar 2.61 3.04 5.66 2.79 1.28 1.80 3.51 5.51 4.63 5.97

. Apr 2.28 2.49 5.24 2.85 1.31 2.23 3.68 5.55 4.45 5.92
. May 1.98 2.25 5.00 2.66 1.76 2.69 3.88 5.57 4.34 6.04
. Jun 2.00 2.25 5.00 2.76 1.89 3.08 4.10 5.68 4.50 6.32

. Jul 2.01 2.25 5.00 2.79 1.66 2.87 4.01 5.67 4.44 6.43
. Aug 2.00 2.25 5.00 2.79 1.75 2.70 3.89 5.64 4.44 6.48
. Sep 1.81 2.25 5.00 3.59 1.15 2.32 3.69 5.65 4.61 6.04

. Oct 0.97 1.81 4.56 4.32 0.69 1.86 3.81 6.28 5.05 6.20
. Nov 0.39 1.25 4.00 2.36 0.19 1.51 3.53 6.12 4.83 6.09
. Dec 0.16 0.86 3.61 1.77 0.03 1.07 2.42 5.05 5.17 5.33

2009 Jan 0.15 0.50 3.25 1.02 0.13 1.13 2.52 5.05 4.64 5.06
. Feb 0.22 0.50 3.25 1.16 0.30 1.37 2.87 5.27 4.56 5.13
. Mar 0.18 0.50 3.25 1.07 0.22 1.31 2.82 5.50 4.74 5.00

. Apr 0.15 0.50 3.25 0.89 0.16 1.32 2.93 5.39 4.48 4.81
. May 0.18 0.50 3.25 0.57 0.18 1.39 3.29 5.54 4.26 4.86
. Jun 0.21 0.50 3.25 0.39 0.18 1.76 3.72 5.61 4.56 5.42

. Jul 0.16 0.50 3.25 0.35 0.18 1.55 3.56 5.41 4.36 5.22
. Aug 0.16 0.50 3.25 0.30 0.17 1.65 3.59 5.26 4.17 5.19
. Sep 0.15 0.50 3.25 0.25 0.12 1.48 3.40 5.13 3.81 5.06

Note: All values are given as a percent at an annual rate.

Research Division
Federal Reserve Bank of St. Louis 17
 updated through
Monetary Trends 10/20/09

M1 MZM M2 M3*
Percent change at an annual rate

2004. 5.57 3.83 4.64 5.09

2005. 2.03 2.10 4.22 5.97
2006. 0.19 4.33 5.04 4.95
2007. -0.08 9.05 5.76 .
2008. 4.07 13.98 6.87 .

2007 1 0.16 7.49 5.85 .

. 2 2.04 9.82 5.78 .
. 3 -1.43 13.65 5.54 .
. 4 1.26 16.85 5.81 .
2008 1 1.37 16.70 8.36 .
. 2 1.95 13.50 5.63 .
. 3 8.75 4.44 4.08 .
. 4 32.03 9.89 14.30 .
2009 1 9.26 18.87 12.51 .
. 2 11.62 6.47 2.73 .
. 3 10.72 1.16 0.12 .

2007 Sep -0.24 20.02 6.17 .

. Oct 6.34 17.21 5.33 .

. Nov -3.70 14.20 5.06 .
. Dec -1.71 9.95 5.43 .
2008 Jan 3.85 11.80 7.96 .
. Feb 2.75 29.17 12.36 .
. Mar 2.40 20.16 10.10 .

. Apr 0.56 9.84 3.32 .

. May -0.18 7.87 3.10 .
. Jun 8.67 6.11 1.90 .

. Jul 13.38 7.04 7.02 .

. Aug -15.04 -4.13 -4.24 .
. Sep 51.66 6.97 17.20 .

. Oct 19.12 5.90 18.32 .

. Nov 39.44 15.64 8.01 .
. Dec 56.79 29.38 26.12 .
2009 Jan -14.14 22.91 11.77 .
. Feb -12.77 7.08 3.33 .
. Mar 2.79 10.57 9.70 .

. Apr 22.61 -1.61 -7.66 .

. May 2.01 15.10 10.22 .
. Jun 39.35 4.44 4.56 .

. Jul 4.23 -0.41 -2.53 .

. Aug -2.69 -7.97 -7.37 .
. Sep 8.97 3.86 4.20 .

*See table of contents for changes to the series.

Research Division
18 Federal Reserve Bank of St. Louis
 Monetary Trends

Definitions nal constant maturity yield less the real constant maturity yield. Daily data and
descriptions are available at research.stlouisfed.org/fred2/. See also Statistical
M1: The sum of currency held outside the vaults of depository institutions, Supplement to the Federal Reserve Bulletin, table 1.35. The 30-year constant
Federal Reserve Banks, and the U.S. Treasury; travelers checks; and demand maturity series was discontinued by the Treasury as of February 18, 2002.
and other checkable deposits issued by financial institutions (except demand
Page 5: Checkable Deposits is the sum of demand and other checkable
deposits due to the Treasury and depository institutions), minus cash items in
deposits. Savings Deposits is the sum of money market deposit accounts and
process of collection and Federal Reserve float.
passbook and statement savings. Time Deposits have a minimum initial
MZM (money, zero maturity): M2 minus small-denomination time deposits, maturity of 7 days. Large Time Deposits are deposits of $100,000 or more.
plus institutional money market mutual funds (that is, those included in M3 but Retail and Institutional Money Market Mutual Funds are as included in
excluded from M2). The label MZM was coined by William Poole (1991); the M2 and the non-M2 component of M3, respectively.
aggregate itself was proposed earlier by Motley (1988).
Page 7: Excess Reserves plus RCB (Required Clearing Balance) Contracts
M2: M1 plus savings deposits (including money market deposit accounts) equals the amount of deposits at Federal Reserve Banks held by depository
and small-denomination (under $100,000) time deposits issued by financial institutions but not applied to satisfy statutory reserve requirements. (This
institutions; and shares in retail money market mutual funds (funds with initial measure excludes the vault cash held by depository institutions that is not
investments under $50,000), net of retirement accounts. applied to satisfy statutory reserve requirements.) Consumer Credit includes
most short- and intermediate-term credit extended to individuals. See Statistical
M3: M2 plus large-denomination ($100,000 or more) time deposits; repurchase
Supplement to the Federal Reserve Bulletin, table 1.55.
agreements issued by depository institutions; Eurodollar deposits, specifically,
dollar-denominated deposits due to nonbank U.S. addresses held at foreign Page 8: Inflation Expectations measures include the quarterly Federal Reserve
offices of U.S. banks worldwide and all banking offices in Canada and the Bank of Philadelphia Survey of Professional Forecasters, the monthly University
United Kingdom; and institutional money market mutual funds (funds with of Michigan Survey Research Center’s Surveys of Consumers, and the annual
initial investments of $50,000 or more). Federal Open Market Committee (FOMC) range as reported to the Congress
Bank Credit: All loans, leases, and securities held by commercial banks. in the February testimony that accompanies the Monetary Policy Report to
the Congress. Beginning February 2000, the FOMC began using the personal
Domestic Nonfinancial Debt: Total credit market liabilities of the U.S. consumption expenditures (PCE) price index to report its inflation range; the
Treasury, federally sponsored agencies, state and local governments, households, FOMC then switched to the PCE chain-type price index excluding food and
and nonfinancial firms. End-of-period basis. energy prices (“core”) beginning July 2004. Accordingly, neither are shown
on this graph. CPI Inflation is the percentage change from a year ago in the
Adjusted Monetary Base: The sum of currency in circulation outside Federal
consumer price index for all urban consumers. Real Interest Rates are ex post
Reserve Banks and the U.S. Treasury, deposits of depository financial institu-
tions at Federal Reserve Banks, and an adjustment for the effects of changes measures, equal to nominal rates minus year-over-year CPI inflation.
in statutory reserve requirements on the quantity of base money held by deposi- From 1991 to the present the source of the long-term PCE inflation expectations
tories. This series is a spliced chain index; see Anderson and Rasche (1996a,b, data is the Federal Reserve Bank of Philadelphia’s Survey of Professional
2001, 2003). Forecasters. Prior to 1991, the data were obtained from the Board of Governors
Adjusted Reserves: The sum of vault cash and Federal Reserve Bank deposits of the Federal Reserve System. Realized (actual) inflation is the annualized rate
held by depository institutions and an adjustment for the effects of changes in of change for the 40-quarter period that corresponds to the forecast horizon (the
statutory reserve requirements on the quantity of base money held by deposi- expectations measure). For example, in 1965:Q1, annualized PCE inflation
tories. This spliced chain index is numerically larger than the Board of over the next 40 quarters was expected to average 1.7 percent. In actuality,
Governors’ measure, which excludes vault cash not used to satisfy statutory the average annualized rate of change measured 4.8 percent from 1965:Q1 to
reserve requirements and Federal Reserve Bank deposits used to satisfy required 1975:Q1. Thus, the vertical distance between the two lines in the chart at any
clearing balance contracts; see Anderson and Rasche (1996a, 2001, 2003). point is the forecast error.

Monetary Services Index: An index that measures the flow of monetary ser- Page 9: FOMC Intended Federal Funds Rate is the level (or midpoint of
vices received by households and firms from their holdings of liquid assets; the range, if applicable) of the federal funds rate that the staff of the FOMC
see Anderson, Jones, and Nesmith (1997). Indexes are shown for the assets expected to be consistent with the desired degree of pressure on bank reserve
included in M2, with additional data at research.stlouisfed.org/msi/index.html. positions. In recent years, the FOMC has set an explicit target for the federal
funds rate.
Note: M1, M2, M3, Bank Credit, and Domestic Nonfinancial Debt are con-
structed and published by the Board of Governors of the Federal Reserve Page 10: Federal Funds Rate and Inflation Targets shows the observed
System. For details, see Statistical Supplement to the Federal Reserve Bulletin, federal funds rate, quarterly, and the level of the funds rate implied by applying
tables 1.21 and 1.26. MZM, Adjusted Monetary Base, Adjusted Reserves, Taylor’s (1993) equation
and Monetary Services Index are constructed and published by the Research
ft*= 2.5 + π t –1 + (π t –1 – π* )/2 + 100 × (yt –1 – yt –1P )/2
Division of the Federal Reserve Bank of St. Louis.
to five alternative target inflation rates, π* = 0, 1, 2, 3, 4 percent, where ft* is
Notes the implied federal funds rate, π t –1 is the previous period’s inflation rate (PCE)
measured on a year-over-year basis, yt –1 is the log of the previous period’s
Page 3: Readers are cautioned that, since early 1994, the level and growth of level of real gross domestic product (GDP), and yt –1P is the log of an estimate
M1 have been depressed by retail sweep programs that reclassify transactions of the previous period’s level of potential output. Potential Real GDP is
deposits (demand deposits and other checkable deposits) as savings deposits estimated by the Congressional Budget Office (CBO). Since the July 2009
overnight, thereby reducing banks’ required reserves; see Anderson and Rasche NIPA revision, there is a discrepancy between real GDP (in billions of chained
(2001) and research.stlouisfed.org/aggreg/swdata.html. Primary Credit Rate, 2005 dollars) and CBO real potential GDP (in billions of chained 2000 dollars).
Discount Rate, and Intended Federal Funds Rate shown in the chart Reserve We have multiplied each quarterly observation of CBO real potential GDP by
Market Rates are plotted as of the date of the change, while the Effective a factor of 1.14. This scaling factor is the average of the ratio of real GDP in
Federal Funds Rate is plotted as of the end of the month. Interest rates in billions of chained 2005 dollars to real GDP in billions of chained 2000 dollars
the table are monthly averages from the Board of Governors H.15 Statistical for the four quarters of 2005.
Release. The Treasury Yield Curve and Real Treasury Yield Curve show
constant maturity yields calculated by the U.S. Treasury for securities 5, 7, 10, Monetary Base Growth and Inflation Targets shows the quarterly growth
and 20 years to maturity. Inflation-Indexed Treasury Yield Spreads are a of the adjusted monetary base implied by applying McCallum’s (2000, p. 52)
measure of inflation compensation at those horizons, and it is simply the nomi- equation

Research Division
Federal Reserve Bank of St. Louis 19
Monetary Trends

own rate.
Δbt = Δxt* − Δvta + λ ( Δxt* − Δxt −1 ),
Bureau of Economic Analysis: GDP.
Δxt* = π * + Δyt*
Bureau of Labor Statistics: CPI.
to five alternative target inflation rates, π* = 0, 1, 2, 3, 4 percent, where Δbt
Chicago Board of Trade: Federal funds futures contract.
is the implied growth rate of the adjusted monetary base, Δy*t is the 10-year
moving average growth in real GDP, Δνtα is the average base velocity growth Chicago Mercantile Exchange: Eurodollar futures.
(calculated recursively), Δxt–1 is the lag growth rate of nominal GDP, and Congressional Budget Office: Potential real GDP.
λ = 0.5.
Federal Reserve Bank of Philadelphia: Survey of Professional Forecasters
Page 11: Implied One-Year Forward Rates are calculated by this Bank from inflation expectations.
Treasury constant maturity yields. Yields to maturity, R(m), for securities with
m = 1,..., 10 years to maturity are obtained by linear interpolation between Federal Reserve Bank of St. Louis: Adjusted monetary base and adjusted
reported yields. These yields are smoothed by fitting the regression suggested reserves, monetary services index, MZM own rate, one-year forward rates.
by Nelson and Siegel (1987), Organization for Economic Cooperation and Development: International
R(m) = a0 + (a1 + a2 )(1 – e–m/50 )/(m/50) – a2 × e–m/50, interest and inflation rates.

and forward rates are calculated from these smoothed yields using equation Standard & Poor’s: Stock price-earnings ratio, stock price composite index.
(a) in table 13.1 of Shiller (1990), University of Michigan Survey Research Center: Median expected price
f(m) = [D(m)R(m) – D(m–1)] / [D(m) – D(m–1)], change.

where duration is approximated as D(m) = (1 – e –R(m) × m)/R(m). These rates U.S. Department of the Treasury: U.S. security yields.
are linear approximations to the true instantaneous forward rates; see Shiller
(1990). For a discussion of the use of forward rates as indicators of inflation
expectations, see Sharpe (1997). Rates on 3-Month Eurodollar Futures and References
Rates on Selected Federal Funds Futures Contracts trace through time the
yield on three specific contracts. Rates on Federal Funds Futures on Selected Anderson, Richard G. and Robert H. Rasche (1996a). “A Revised Measure of
Dates displays a single day’s snapshot of yields for contracts expiring in the the St. Louis Adjusted Monetary Base,” Federal Reserve Bank of St. Louis
months shown on the horizontal axis. Inflation-Indexed Treasury Securities Review, March/April, 78(2), pp. 3-13.*
and Yield Spreads are those plotted on page 3. Inflation-Indexed 10-Year ____ and ____(1996b). “Measuring the Adjusted Monetary Base in an Era of
Government Notes shows the yield of an inflation-indexed note that is
Financial Change,” Federal Reserve Bank of St. Louis Review, November/
scheduled to mature in approximately (but not greater than) 10 years. The
December, 78(6), pp. 3-37.*
current French note has a maturity date of 7/25/2015, the current U.K. note
has a maturity date of 8/16/2013, and the current U.S. note has a maturity date ____ and ____(2001). “Retail Sweep Programs and Bank Reserves, 1994-
of 1/15/2018. Inflation-Indexed Treasury Yield Spreads and Inflation- 1999,” Federal Reserve Bank of St. Louis Review, January/February,
Indexed 10-Year Government Yield Spreads equal the difference between 83(1), pp. 51-72.*
the yields on the most recently issued inflation-indexed securities and the
unadjusted security yields of similar maturity. ____ and ____ , with Jeffrey Loesel (2003). “A Reconstruction of the Federal
Reserve Bank of St. Louis Adjusted Monetary Base and Reserves,”
Page 12: Velocity (for MZM and M2) equals the ratio of GDP, measured in Federal Reserve Bank of St. Louis Review, September/October, 85(5),
current dollars, to the level of the monetary aggregate. MZM and M2 Own pp. 39-70.*
Rates are weighted averages of the rates received by households and firms
on the assets included in the aggregates. Prior to 1982, the 3-month T-bill ____ , Barry E. Jones and Travis D. Nesmith (1997). “Special Report: The
rates are secondary market yields. From 1982 forward, rates are 3-month Monetary Services Indexes Project of the Federal Reserve Bank of St.
constant maturity yields. Louis,” Federal Reserve Bank of St. Louis Review, January/February,
79(1), pp. 31-82.*
Page 13: Real Gross Domestic Product is GDP as measured in chained
2000 dollars. The Gross Domestic Product Price Index is the implicit price McCallum, Bennett T. (2000). “Alternative Monetary Policy Rules:
deflator for GDP, which is defined by the Bureau of Economic Analysis, A Comparison with Historical Settings for the United States, the United
U.S. Department of Commerce, as the ratio of GDP measured in current Kingdom, and Japa,” Federal Reserve Bank of Richmond Economic
dollars to GDP measured in chained 2005 dollars. Quarterly, vol. 86/1, Winter.
Page 14: Investment Securities are all securities held by commercial banks Motley, Brian (1988). “Should M2 Be Redefined?” Federal Reserve Bank of
in both investment and trading accounts. San Francisco Economic Review, Winter, pp. 33-51.
Page 15: Inflation Rate Differentials are the differences between the foreign Nelson, Charles R. and Andrew F. Siegel (1987). “Parsimonious Modeling of
consumer price inflation rates and year-over-year changes in the U.S. all-items Yield Curves,” Journal of Business, October, pp. 473-89.
Consumer Price Index.
Poole, William (1991). Statement before the Subcommittee on Domestic
Page 17: Treasury Yields are Treasury constant maturities as reported in the Monetary Policy of the Committee on Banking, Finance and Urban Affairs,
Board of Governors of the Federal Reserve System’s H.15 release. U.S. House of Representatives, November 6, 1991. Government Printing
Office, Serial No. 102-82.
Sources Sharpe, William F. (1997). Macro-Investment Analysis, on-line textbook
Agence France Trésor: French note yields. available at www.stanford.edu/~wfsharpe/mia/mia.htm.
Bank of Canada: Canadian note yields. Shiller, Robert (1990). “The Term Structure of Interest Rates,” Handbook of
Bank of England: U.K. note yields. Monetary Economics, vol. 1, B. Friedman and F. Hahn, eds., pp. 627-722.
Board of Governors of the Federal Reserve System: Taylor, John B. (1993). “Discretion versus Policy Rules in Practice,” Carnegie-
Monetary aggregates and components: H.6 release. Bank credit and com- Rochester Conference Series on Public Policy, vol. 39, pp. 195-214.
ponents: H.8 release. Consumer credit: G.19 release. Required reserves,
excess reserves, clearing balance contracts, and discount window borrowing: Note: *Available on the Internet at research.stlouisfed.org/publications/review/.
H.4.1 and H.3 releases. Interest rates: H.15 release. Nonfinancial commercial
paper: Board of Governors website. Nonfinancial debt: Z.1 release. M2

Research Division
20 Federal Reserve Bank of St. Louis