MonetaryTrends

November 2011

Liquidity Crises in the Small and Large

T

he financial crisis of 2008 was a liquidity crisis—that is, a increased sharply during the autumn of 2008. MSI-MZM includes the period when some creditworthy households and firms could assets in MSI-M2M plus institution-type MMMF; it accelerated beginnot obtain sufficient liquid (money) balances to complete ning mid-2007. MSI-M2 includes the assets in MSI-M2M plus smallnecessary transactions. Most visible was the closure of the repurdenomination time deposits, and MSI-ALL includes all the assets of chase agreement (repo) market, in which both banks and non-banking MSI-M2 plus institution-type MMMF. These broader series grew more firms alike typically exchange securities for short-term cash. steadily both before and during the crisis. Although the evidence is The Federal Reserve responded to the crisis by initiating an mixed, the MSI overall suggest that monetary policy was accommodaextraordinary set of assistance programs under the authority of tive before the financial crisis when judged in terms of liquidity. Section 13(3) of the Federal Reserve Act.1 An unusual aspect of —Richard G. Anderson and Barry Jones these programs was that they sought to assist individual firms or 1 These programs are reviewed by Anderson and Gascon (2009, 2011). industries. In normal times, the Federal Open Market Committee 2 See Anderson and Jones (2011). The Bank of England publishes similar measures (FOMC) sets a target for the federal funds rate and enforces it by for the United Kingdom (Hancock, 2005). The use of index numbers to measure the changing the size of the Fed’s balance sheet to change the aggremacroeconomic concept of money began with William Barnett; see Barnett and gate amount of liquidity that it provides to financial markets. The Serletis (2000) and references therein. allocation of liquidity among households and firms, in turn, is deter3 See Anderson and Jones (2011) for details. mined by financial markets. Beyond the liquidity crises of individual firms, an interesting question is whether the aggregate amount of Anderson, Richard G. and Gascon, Charles S. “The Commercial Paper Market, the Fed, and the 2007-2009 Financial Crisis.” Federal Reserve Bank of St. Louis Review, liquidity in the economy was appropriate before and during the crisis: November/December 2009, 91(6), pp. 589-612; http://research.stlouisfed.org/pubWas there a liquidity crisis in the “large” as well as the “small”? lications/review/09/11/Anderson.pdf. The recently updated Monetary Service Indexes (MSI) published Anderson, Richard G. and Gascon, Charles S. “A Closer Look: Assistance Programs 2 by the Federal Reserve Bank of St. Louis provide some evidence. in the Wake of the Crisis.” Federal Reserve Bank of St. Louis Regional Economist, These indexes build on the idea that monetary assets (including January 2011, pp. 4-10; www.stlouisfed.org/publications/re/articles/?id=2067. checkable deposits, saving deposits, small-denomination time Anderson, Richard G. and Jones, Barry. “A Comprehensive Revision of the U.S. deposits, and money market mutual funds [MMMF]) furnish “moneMonetary Services (Divisia) Indexes.” Federal Reserve Bank of St. Louis Review, tary services” that households and firms use to buy and sell goods September/October 2011, 93(5), pp. 325-60; and services. Some assets are immediately media of exchange (e.g., http://research.stlouisfed.org/publications/review/11/09/325-360Anderson.pdf. currency), while others are not (e.g., saving deposits and smallBarnett, William A. and Serletis, Apostolos, eds. The Theory of Monetary Aggregation. Amsterdam: North-Holland, 2000. denomination time deposits). The MSI are chained-weighted index numbers (similar to those used to measure gross domestic product) Hancock, Matthew. “Divisia Money.” Bank of England Quarterly Bulletin, Spring 2005, pp. 39-46; www.bankofengland.co.uk/publications/quarterlybulletin/qb050103.pdf. that combine observed market data on financial asset quantities and own rates of return in order to measure these flows of monetary services. The own rates of return MSI (August 2001–August 2011) received by households and firms on their monetary assets, compared with broader market rates 1.7 M2M of return, provide measures of the opportunity MZM 1.6 cost of the monetary services furnished by each M1 M2 asset. Economic and statistical theory provides 1.5 ALL specific mathematical functions with which to 1.4 calculate the MSI as described in Anderson and Jones (2011). 1.3 The chart shows five MSI. (These MSI differ M1 with respect to the number of included assets.3 1.2 M2 MZM The data are log levels, each normalized to 1.0 in 1.1 M2 August 2001.) MSI-M1 contains only currency ALL and checkable deposits, and MSI-M2M includes 1.0 2009 2001 2004 2006 2007 2008 2010 2011 2002 2003 2005 the assets in MSI-M1 plus savings deposits and retail MMMF; both leveled out in 2004 as the NOTE: The shaded areas indicate intervals between the National Bureau of Economic Research business cycle peaks and troughs. FOMC tightened its policy stance and later
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

research.stlouisfed.org

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

Conventions used in this publication:
1. Unless otherwise indicated, data are monthly. 2. Shaded areas indicate recessions, as determined by the National Bureau of Economic Research. 3. Percent change at an annual rate is the simple, not compounded, monthly percent change multiplied by 12. For example, using consecutive months, the percent change at an annual rate in x between month t –1 and the current month t is: [(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 Research Division Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, MO 63166-0442 or to: stlsFRED@stls.frb.org On March 23, 2006, the Board of Governors of the Federal Reserve System ceased the publication of the M3 monetary aggregate. It also ceased publishing the following components: large-denomination time deposits, RPs, and eurodollars.

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 10/18/11

Monetary Trends
Treasury Yield Curve
Percent
4.4

M2 and MZM
Billions of dollars
11000

Week Ending Friday: 10/15/10 09/16/11 10/14/11

10000

MZM

3.2

9000

M2
8000

2.0

7000

0.8

2008

2009

2010

2011

5y

7y

10y

20y

Adjusted Monetary Base
Percent change at an annual rate
400

Real Treasury Yield Curve
Percent
2

300

Week Ending Friday: 10/15/10 09/16/11 10/14/11

200

1

100

0

0

-100

-200

-1

2008

2009

2010

2011

5y

7y

10y

20y

Reserve Market Rates
Percent
5

Inflation-Indexed Treasury Yield Spreads
Percent
2.7

Effective Federal Funds Rate Intended Federal Funds Rate
4

Week Ending Friday: 10/15/10 09/16/11 10/14/11

3

2.2

2 1.7

Primary Credit Rate
1

0

1.2

2008

2009

2010

2011

5y

7y

10y

20y

Note: Effective December 16, 2008, FOMC reports the intended Federal Funds Rate as a range.
Research Division Federal Reserve Bank of St. Louis

3

Monetary Trends
M1
Percent change from year ago
24 18 12 6 0 -6 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

updated through 10/17/11

09

10

11

MZM
Percent change from year ago
25 20 15 10 5 0 -5 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

M2
Percent change from year ago
12 9 6 3 0 -3 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Monetary Services Index - M2**
Percent change from year ago
15 10 5 0 -5 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

**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 10/17/11

Monetary Trends

Adjusted Monetary Base
Percent change from year ago
120 100 80 60 40 20 0 -20 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Domestic Nonfinancial Debt
Percent change from year ago
40 30 20 10 0 -10 2004 2005 2006 2007 2008 2009 2010 2011

Currency Held by the Nonbank Public
Percent change from year ago
15

10

Total Federal
5

0 2008 2009 2010 2011

Small Denomination Time Deposits
Percent change from year ago
25.0 12.5

Checkable Deposits
Percent change from year ago
30

20 0.0 10 -12.5 -25.0 2008 2009 2010 2011 0 2008 2009 2010 2011

Money Market Mutual Fund Shares
Percent change from year ago
60

Savings Deposits
Percent change from year ago
20 15

30

Institutional Funds
0

10 5

Retail Funds
-30 2008 2009 2010 2011 0 2008 2009 2010 2011

Research Division Federal Reserve Bank of St. Louis

5

Monetary Trends
Adjusted and Required Reserves
Billions of dollars
1800

updated through 10/17/11

1200

600

Required Adjusted
| | |
00 01 02 03 04 05 06 07 08 09 10 11

0 94 95 96 97 98 99

Total Borrowings, nsa
Billions of dollars
450

Excess Reserves plus RCB Contracts
Billions of dollars
2000 1500

300 1000 150 500 0 2004 2005 2006 2007 2008 2009 2010 2011 0 2004 2005 2006 2007 2008 2009 2010 2011

* Data exclude term auction credit

Nonfinancial Commercial Paper
Percent change from year ago
60 30 0 -30 -60 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

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

10

0

-10 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Research Division

6

Federal Reserve Bank of St. Louis

updated through 08/16/11

Monetary Trends

Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans
Percentage

90 60 30

Large & Medium Firms

Small Firms
0 -30 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Net Percentage of Domestic Banks Tightening Standards for Commercial Real Estate Loans
Percentage

90 60 30 0 -30 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Net Percentage of Domestic Banks Tightening Standards for Residential Mortgage Loans
Percentage

80 60 40 20 0 -20 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Net Percentage of Domestic Banks Tightening Standards for Consumer Loans
Percentage

90 60

Credit Card Loans
30 0

Other Consumer Loans
-30 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Research Division Federal Reserve Bank of St. Louis

7

Monetary Trends

updated through 10/05/11

CPI Inflation and 1-Year-Ahead CPI Inflation Expectations
Percent
6 5

CPI Inflation Humphrey-Hawkins CPI Inflation Range

4 3 2 1 0 -1 -2 | | | | | | | | | | | |

University of Michigan

Federal Reserve Bank of Philadelphia
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

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
8

6

4

2

Realized
0
65 70 75 80 85 90 95 00

Expected

05

10

See the notes section for an explanation of the chart.

Treasury Security Yield Spreads
Yield to maturity
4

Real Interest Rates
Percent, Real rate = Nominal rate less year-over-year CPI inflation
4

10-Year less 3-Month T-Bill

1-Year Treasury Yield
2 2

0

0

10-Year less 3-Year Note

3-Year less 3-Month T-Bill

-2

Federal Funds Rate
-2 -4

02

03

04

05

06

07

08

09

10

11

02

03

04

05

06

07

08

09

10

11

Research Division

8

Federal Reserve Bank of St. Louis

updated through 10/05/11

Monetary Trends

Short-Term Interest Rates
Percent
12 10 8 6 4 2 0 -2
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

90-Day Commercial Paper

Prime Rate

3-Month Treasury Yield

Long-Term Interest Rates
Percent
10

Conventional Mortgage
7 | | | | | |

Corporate Aaa
4

10-Year Treasury Yield
1
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Long-Term Interest Rates
Percent
10

Short-Term Interest Rates
Percent
4

Corporate Baa
7

3

90-Day Commercial Paper
2

4

10-Year Treasury Yield
1

3-Month Treasury Yield
| | |

1
2008 2009 2010 2011

0 2008 2009 2010 2011

FOMC Intended Federal Funds Rate, Discount Rate, and Primary Credit Rate
Percent
8 6 4 2 0
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Intended Federal Funds Rate Discount Rate Primary Credit Rate

Research Division Federal Reserve Bank of St. Louis

9

Monetary Trends
Federal Funds Rate and Inflation Targets
Percent
10

updated through 10/17/11

4% 3% 2% 1% 0%

Target Inflation Rates

5

Actual
0

-5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

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
15000

Percent change from year ago
5

Potential
13000

4 3

Actual
11000

2 1 0

9000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-1 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

See notes section for further explanation.

Monetary Base Growth and Inflation Targets
Percent
30

15

Target Inflation Rates

0% 1% 2% 3% 4%

Actual

0

-15 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Calculated base growth is based on McCallum's rule. Actual base growth is percent change from the previous quarter. Stars represent actual values for 2008:Q4, 2009:Q1, 2009:Q4, 2011:Q1, 2011:Q2 and are 188.02 percent, 60.74 percent, 56.52 percent, 45.94 percent, and 58.74 percent, respectively.

Components of McCallum's Rule Monetary Base Velocity Growth Real Output Growth
Percent
15 0 -15 -30 -45 -60 -75 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0

Percent Recursive Average
|
10 5

10-Year Moving Average
| | |

1-Year Moving Average

-5 -10 2002

Quarter to Quarter Growth Rate

2003

2004

2005

2006

2007

2008

2009

2010

2011

Research Division

10

Federal Reserve Bank of St. Louis

updated through 10/18/11

Monetary Trends
Rates on 3-Month Eurodollar Futures
Percent, daily data
0.63

Implied One-Year Forward Rates
Percent
6 5 4 3 2 1

Week Ending: 10/15/10 09/16/11 10/14/11

Dec 2011
0.54

Nov 2011
0.45

Oct 2011
0
2y 3y 5y 7y 10y

0.36
08/15 08/22 08/29 09/05 09/12 09/19 09/26 10/03 10/10 10/17

Rates on Selected Federal Funds Futures Contracts
Percent, daily data
0.11

Rates on Federal Funds Futures on Selected Dates
Percent
0.12

10/14/2011 Oct 2011
0.09 0.10

08/12/2011

0.07

Nov 2011 Dec 2011

0.08

09/16/2011
0.06

0.05
08/15 08/22 08/29 09/05 09/12 09/19 09/26 10/03 10/10 10/17

Oct

Nov

Dec

Jan

Feb

Mar

Contract Month

Inflation-Indexed Treasury Securities
Weekly data
Percent 4.00 1.67 -0.67 -3.00 2009 15 2010 . 10 2011 2012 5 Maturity

Inflation-Indexed Treasury Yield Spreads
Weekly data
Percent 4.00 1.67 -0.67 -3.00 2009 15 2010 . 10 2011 2012 5 Horizon

20

20

Note: Yields are inflation-indexed constant maturity U.S. Treasury securities

Note: Yield spread is between nominal and inflation-indexed constant maturity U.S. Treasury securities.

Inflation-Indexed 10-Year Government Notes
Percent, weekly data
4 3 2 1 0 -1 2007 2008 2009 2010 2011

Inflation-Indexed 10-Year Government Yield Spreads
Percent, weekly data
3

U.S.

2

U.S.
1

0 2007 2008 2009 2010 2011

Note: Data is temporarily unavailable for the French and U.K. 10-Year Notes and Government Yield Spreads.

Research Division Federal Reserve Bank of St. Louis

11

Monetary Trends
Velocity
Nominal GDP/MZM, Nominal GDP/M2 (Ratio Scale)
2.75 2.50 2.25 2.00

updated through 10/17/11

MZM

M2

1.75

1.50

1.25
12419

94

12784

95

13149

96

13515

97

13880

98

14245

99

14610

00

14976

01

15341

02

15706

03

16071

04

16437

05

16802

06

17167

07

17532

08

17898

09

18263

10

18628

11

18993

Interest Rates
Percent
8

6

3-Month T-Bill
4

M2 Own
2

MZM Own
0

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

MZM Velocity and Interest Rate Spread
Ratio Scale
3.50

M2 Velocity and Interest Rate Spread
Ratio Scale
2.25

Velocity = Nominal GDP / MZM

3.00 2.50

Velocity = Nominal GDP / M2

2.00

2.00

1.75

1.50

1.50

1974Q1 to 1993Q4 1994Q1 to present
1.00 1.25

1974Q1 to 1993Q4 1994Q1 to present

-1

0 3 5 6 8 9 10 11 1 2 4 7 Interest Rate Spread = 3-Month T-Bill less MZM Own Rate

-1

0 3 5 6 1 2 4 Interest Rate Spread = 3-Month T-Bill less M2 Own Rate

Research Division

12

Federal Reserve Bank of St. Louis

updated through 10/17/11

Monetary Trends

Gross Domestic Product
Percent change from year ago
10 8 6 4 2 0 -2 -4 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Dashed lines indicate 10-year moving averages.

Real Gross Domestic Product
Percent change from year ago
6 3 0 -3 -6 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Dashed lines indicate 10-year moving averages.

Gross Domestic Product Price Index
Percent change from year ago
5 4 3 2 1 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Dashed lines indicate 10-year moving averages.

M2
Percent change from year ago
12 9 6 3 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Dashed lines indicate 10-year moving averages.

Research Division Federal Reserve Bank of St. Louis

13

Monetary Trends
Bank Credit
Percent change from year ago
15 10 5 0 -5 -10 2002 2003 2004 2005 2006 2007 2008 2009

updated through 10/17/11

2010

2011

Investment Securities in Bank Credit at Commercial Banks
Percent change from year ago
20 15 10 5 0 -5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Total Loans and Leases in Bank Credit at Commercial Banks
Percent change from year ago
15 10 5 0 -5 -10 -15 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Commercial and Industrial Loans at Commercial Banks
Percent change from year ago
30 15 0 -15 -30 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Research Division

14

Federal Reserve Bank of St. Louis

updated through 10/12/11

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

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

Recent Inflation and Long-Term Interest Rates
Consumer Price Inflation Rates
Percent change from year ago 2010Q3 2010Q4 2011Q1 United States Canada France Germany Italy Japan United Kingdom
* Copyright

Long-Term Government Bond Rates
2011Q2
3.33 3.36 2.07 2.35 2.67 -0.43 4.37

Jun11
3.00 3.00 3.43 2.89 4.82 1.08 3.39

Jul11
3.00 2.95 3.40 2.74 5.46 1.08 3.29

Percent Aug11
2.30 2.46 2.98 2.21 5.27 . 2.76

Sep11
1.98 2.20 2.64 1.83 5.75 . .

1.22 1.83 1.53 1.18 1.62 -0.96 3.09

1.20 2.27 1.65 1.49 1.79 -0.29 3.36

2.17 2.60 1.81 2.08 2.34 -0.52 4.13

, 2011, Organisation for Economic Cooperation and Development, OECD Main Economic Indicators (www.oecd.org).

Inflation and Long-Term Interest Rate Differentials
Percent
2

Percent
4

Canada Germany

Germany

U.K.

2 0

U.K. Canada
0

-2 -2

Inflation differential = Foreign inflation less U.S. inflation Long-term rate differential = Foreign rate less U.S. rate
-4 -4

Japan Japan
2008 2009 2010 2011

2008

2009

2010

2011

Research Division Federal Reserve Bank of St. Louis

15

Monetary Trends
Money Stock
M1
2006 . 2007 . 2008 . 2009 . 2010 . 1374.188 1372.136 1433.140 1636.837 1740.672

updated through 10/17/11

Bank M3*
10270.74 . . . .

Adjusted Monetary Base
835.035 850.529 1010.131 1796.544 2031.704

MZM
7001.801 7636.515 8710.223 9544.509 9536.483

M2
6864.998 7297.654 7816.427 8432.307 8623.201

Credit
7691.512 8453.004 9106.875 9193.553 9138.617

Reserves
94.908 94.146 232.536 944.774 1144.134

MSI M2**
. . . . .

2009 . . . 2010 . . . 2011 . .

1 2 3 4 1 2 3 4 1 2 3

1577.914 1624.149 1660.871 1684.413 1698.790 1708.538 1747.113 1808.245 1869.992 1924.146 2077.409

9403.304 9588.049 9607.369 9579.315 9477.109 9419.642 9537.833 9711.348 9801.152 10035.93 10423.15

8352.344 8424.850 8444.302 8507.731 8503.684 8558.483 8653.345 8777.292 8887.099 9022.560 9480.149

. . . . . . . . . . .

9335.930 9307.671 9131.444 8999.166 8920.329 9207.812 9210.683 9215.644 9169.862 9177.282 9266.725

1662.910 1763.620 1747.189 2012.459 2089.193 2034.300 2003.663 1999.660 2243.008 2597.870 2680.254

820.582 917.025 895.450 1146.039 1217.051 1158.476 1117.955 1083.054 1310.597 1647.733 1714.344

. . . . . . . . . . .

2009 Sep . . . Oct Nov Dec

1665.768 1679.823 1679.878 1693.538 1681.032 1703.324 1712.015 1698.852 1703.972 1722.790 1725.883 1746.277 1769.180 1779.259 1817.171 1828.304 1850.333 1871.451 1888.193 1897.827 1929.591 1945.020 2003.599 2105.656 2122.972

9592.764 9586.007 9584.233 9567.705 9484.153 9508.962 9438.213 9401.200 9417.657 9440.069 9470.010 9535.741 9607.747 9662.857 9718.765 9752.421 9745.485 9795.715 9862.255 9948.958 10040.36 10118.48 10301.28 10445.53 10522.63

8452.026 8482.442 8511.972 8528.780 8465.809 8533.570 8511.674 8522.443 8561.890 8591.117 8607.079 8652.648 8700.308 8740.802 8778.857 8812.217 8836.813 8898.174 8926.310 8958.355 9010.222 9099.103 9311.419 9542.095 9586.934

. . . . . . . . . . . . . . . . . . . . . . . . .

9050.949 8973.048 9030.054 8994.396 8939.579 8879.978 8941.430 9261.585 9206.831 9155.020 9193.851 9226.294 9211.904 9233.733 9221.328 9191.869 9193.643 9159.440 9156.502 9182.632 9185.122 9164.092 9222.375 9285.235 9292.563

1819.736 1975.378 2044.688 2017.311 2010.111 2150.926 2106.541 2044.317 2034.566 2024.018 2015.197 2014.643 1981.149 1998.502 1991.154 2009.323 2057.166 2243.621 2428.238 2531.680 2590.373 2671.557 2703.582 2680.498 2656.683

965.271 1122.203 1182.381 1133.534 1105.468 1296.208 1249.476 1179.158 1149.889 1146.380 1131.111 1133.742 1089.012 1099.716 1076.443 1073.003 1095.898 1327.499 1508.394 1599.149 1627.374 1716.676 1738.098 1721.613 1683.320

. . . . . . . . . . . . . . . . . . . . . . . . .

2010 Jan . . . . . . . . . . . Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2011 Jan . . . . . . . . Feb Mar Apr May Jun Jul Aug Sep

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 10/12/11

Monetary Trends
Federal Primary Prime 3-mo CDs Treasury Yields 3-mo 3-yr 10-yr Corporate Municipal Conventional Mortgage

Funds Credit Rate Rate

Aaa Bonds Aaa Bonds

2006 . 2007 . 2008 . 2009 . 2010 .

4.96 5.02 1.93 0.16 0.17

5.96 5.86 2.39 0.50 0.72

7.96 8.05 5.09 3.25 3.25

5.15 5.27 2.97 0.56 0.31

4.85 4.47 1.39 0.15 0.14

4.77 4.34 2.24 1.43 1.11

4.79 4.63 3.67 3.26 3.21

5.59 5.56 5.63 5.31 4.94

4.15 4.13 4.58 4.27 3.90

6.41 6.34 6.04 5.04 4.69

2009 . . . 2010 . . . 2011 . .

1 2 3 4 1 2 3 4 1 2 3

0.18 0.18 0.16 0.12 0.13 0.19 0.19 0.19 0.16 0.09 0.08

0.50 0.50 0.50 0.50 0.61 0.75 0.75 0.75 0.75 0.75 0.75

3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25

1.08 0.62 0.30 0.22 0.21 0.42 0.34 0.28 0.28 0.22 0.29

0.22 0.17 0.16 0.06 0.11 0.15 0.16 0.14 0.13 0.05 0.02

1.27 1.49 1.56 1.39 1.47 1.38 0.83 0.74 1.16 0.95 0.47

2.74 3.31 3.52 3.46 3.72 3.49 2.79 2.86 3.46 3.21 2.43

5.27 5.51 5.27 5.20 5.29 5.04 4.58 4.86 5.13 5.04 4.46

4.64 4.43 4.11 3.91 3.93 3.83 3.58 4.24 4.71 4.50 4.02

5.06 5.03 5.16 4.92 5.00 4.91 4.45 4.41 4.85 4.66 4.31

2009 Sep . . . Oct Nov Dec

0.15 0.12 0.12 0.12 0.11 0.13 0.16 0.20 0.20 0.18 0.18 0.19 0.19 0.19 0.19 0.18 0.17 0.16 0.14 0.10 0.09 0.09 0.07 0.10 0.08

0.50 0.50 0.50 0.50 0.50 0.59 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75

3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25

0.25 0.24 0.21 0.22 0.20 0.19 0.23 0.30 0.45 0.52 0.41 0.32 0.28 0.27 0.27 0.30 0.29 0.28 0.28 0.23 0.21 0.22 0.24 0.29 0.33

0.12 0.07 0.05 0.05 0.06 0.11 0.15 0.16 0.16 0.12 0.16 0.16 0.15 0.13 0.14 0.14 0.15 0.13 0.10 0.06 0.04 0.04 0.04 0.02 0.01

1.48 1.46 1.32 1.38 1.49 1.40 1.51 1.64 1.32 1.17 0.98 0.78 0.74 0.57 0.67 0.99 1.03 1.28 1.17 1.21 0.94 0.71 0.68 0.38 0.35

3.40 3.39 3.40 3.59 3.73 3.69 3.73 3.85 3.42 3.20 3.01 2.70 2.65 2.54 2.76 3.29 3.39 3.58 3.41 3.46 3.17 3.00 3.00 2.30 1.98

5.13 5.15 5.19 5.26 5.26 5.35 5.27 5.29 4.96 4.88 4.72 4.49 4.53 4.68 4.87 5.02 5.04 5.22 5.13 5.16 4.96 4.99 4.93 4.37 4.09

3.81 3.85 3.99 3.89 3.96 3.91 3.91 3.95 3.75 3.81 3.69 3.44 3.63 3.62 4.44 4.67 4.86 4.79 4.47 4.93 4.33 4.23 4.31 3.90 3.84

5.06 4.95 4.88 4.93 5.03 4.99 4.97 5.10 4.89 4.74 4.56 4.43 4.35 4.23 4.30 4.71 4.76 4.95 4.84 4.84 4.64 4.51 4.55 4.27 4.11

2010 Jan . Feb . Mar . . . . . . . . . Apr May Jun Jul Aug Sep Oct Nov Dec

2011 Jan . Feb . Mar . . . . . . Apr May Jun Jul Aug Sep

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

Research Division Federal Reserve Bank of St. Louis

17

Monetary Trends

updated through 10/17/11

M1
Percent change at an annual rate

MZM

M2

M3*

2006 . 2007 . 2008 . 2009 . 2010 .

0.19 -0.15 4.45 14.21 6.34

4.34 9.07 14.06 9.58 -0.08

5.26 6.30 7.11 7.88 2.26

4.95 . . . .

2009 . . . 2010 . . . 2011 . .

1 2 3 4 1 2 3 4 1 2 3

12.72 11.72 9.04 5.67 3.41 2.30 9.03 14.00 13.66 11.58 31.86

18.08 7.86 0.81 -1.17 -4.27 -2.43 5.02 7.28 3.70 9.58 15.43

12.45 3.47 0.92 3.00 -0.19 2.58 4.43 5.73 5.00 6.10 20.29

. . . . . . . . . . .

2009 Sep . . . Oct Nov Dec

7.56 10.13 0.04 9.76 -8.86 15.91 6.12 -9.23 3.62 13.25 2.15 14.18 15.74 6.84 25.57 7.35 14.46 13.70 10.74 6.12 20.08 9.60 36.14 61.12 9.87

0.42 -0.85 -0.22 -2.07 -10.48 3.14 -8.93 -4.71 2.10 2.86 3.81 8.33 9.06 6.88 6.94 4.16 -0.85 6.19 8.15 10.55 11.02 9.34 21.68 16.80 8.86

3.37 4.32 4.18 2.37 -8.86 9.60 -3.08 1.52 5.55 4.10 2.23 6.35 6.61 5.59 5.22 4.56 3.35 8.33 3.79 4.31 6.95 11.84 28.00 29.73 5.64

. . . . . . . . . . . . . . . . . . . . . . . . .

2010 Jan . Feb . Mar . . . . . . . . . Apr May Jun Jul Aug Sep Oct Nov Dec

2011 Jan . Feb . Mar . . . . . . Apr May Jun Jul Aug Sep

*See table of contents for changes to the series.

Research Division

18

Federal Reserve Bank of St. Louis

Monetary Trends

Definitions
M1: The sum of currency held outside the vaults of depository institutions, Federal Reserve Banks, and the U.S. Treasury; travelers checks; and demand and other checkable deposits issued by financial institutions (except demand deposits due to the Treasury and depository institutions), minus cash items in process of collection and Federal Reserve float. MZM (money, zero maturity): M2 minus small-denomination time deposits, plus institutional money market mutual funds (that is, those included in M3 but excluded from M2). The label MZM was coined by William Poole (1991); the aggregate itself was proposed earlier by Motley (1988). M2: M1 plus savings deposits (including money market deposit accounts) and small-denomination (under $100,000) time deposits issued by financial institutions; and shares in retail money market mutual funds (funds with initial investments under $50,000), net of retirement accounts. M3: M2 plus large-denomination ($100,000 or more) time deposits; repurchase agreements issued by depository institutions; Eurodollar deposits, specifically, dollar-denominated deposits due to nonbank U.S. addresses held at foreign offices of U.S. banks worldwide and all banking offices in Canada and the United Kingdom; and institutional money market mutual funds (funds with initial investments of $50,000 or more). Bank Credit: All loans, leases, and securities held by commercial banks. Domestic Nonfinancial Debt: Total credit market liabilities of the U.S. Treasury, federally sponsored agencies, state and local governments, households, and nonfinancial firms. End-of-period basis. Adjusted Monetary Base: The sum of currency in circulation outside Federal Reserve Banks and the U.S. Treasury, deposits of depository financial institutions at Federal Reserve Banks, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. This series is a spliced chain index; see Anderson and Rasche (1996a,b, 2001, 2003). Adjusted Reserves: The sum of vault cash and Federal Reserve Bank deposits held by depository institutions and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. This spliced chain index is numerically larger than the Board of Governors’ measure, which excludes vault cash not used to satisfy statutory reserve requirements and Federal Reserve Bank deposits used to satisfy required clearing balance contracts; see Anderson and Rasche (1996a, 2001, 2003). Monetary Services Index: An index that measures the flow of monetary services received by households and firms from their holdings of liquid assets; see Anderson, Jones, and Nesmith (1997). Indexes are shown for the assets included in M2, with additional data at research.stlouisfed.org/msi/index.html. Note: M1, M2, M3, Bank Credit, and Domestic Nonfinancial Debt are constructed and published by the Board of Governors of the Federal Reserve System. For details, see Statistical Supplement to the Federal Reserve Bulletin, tables 1.21 and 1.26. MZM, Adjusted Monetary Base, Adjusted Reserves, and Monetary Services Index are constructed and published by the Research Division of the Federal Reserve Bank of St. Louis.

nominal constant maturity yield less the real constant maturity yield. Daily data and descriptions are available at research.stlouisfed.org/fred2/. See also Statistical Supplement to the Federal Reserve Bulletin, table 1.35. The 30-year constant maturity series was discontinued by the Treasury as of February 18, 2002. Page 5: Checkable Deposits is the sum of demand and other checkable deposits. Savings Deposits is the sum of money market deposit accounts and passbook and statement savings. Time Deposits have a minimum initial maturity of 7 days. Retail Money Market Mutual Funds are included in M2. Institutional money market funds are not included in M2. Page 6: Excess Reserves plus RCB (Required Clearing Balance) Contracts equals the amount of deposits at Federal Reserve Banks held by depository institutions but not applied to satisfy statutory reserve requirements. (This measure excludes the vault cash held by depository institutions that is not applied to satisfy statutory reserve requirements.) Consumer Credit includes most short- and intermediate-term credit extended to individuals. See Statistical Supplement to the Federal Reserve Bulletin, table 1.55. Page 7: Data are reported in the Senior Loan Officer Opinion Survey on Bank Lending Practices. Page 8: Inflation Expectations measures include the quarterly Federal Reserve Bank of Philadelphia Survey of Professional Forecasters, the monthly University of Michigan Survey Research Center’s Surveys of Consumers, and the annual Federal Open Market Committee (FOMC) range as reported to the Congress in the February testimony that accompanies the Monetary Policy Report to the Congress. Beginning February 2000, the FOMC began using the personal consumption expenditures (PCE) price index to report its inflation range; the FOMC then switched to the PCE chain-type price index excluding food and energy prices (“core”) beginning July 2004. Accordingly, neither are shown on this graph. CPI Inflation is the percentage change from a year ago in the consumer price index for all urban consumers. Real Interest Rates are ex post measures, equal to nominal rates minus year-over-year CPI inflation. From 1991 to the present the source of the long-term PCE inflation expectations data is the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters. Prior to 1991, the data were obtained from the Board of Governors of the Federal Reserve System. Realized (actual) inflation is the annualized rate of change for the 40-quarter period that corresponds to the forecast horizon (the expectations measure). For example, in 1965:Q1, annualized PCE inflation over the next 40 quarters was expected to average 1.7 percent. In actuality, the average annualized rate of change measured 4.8 percent from 1965:Q1 to 1975:Q1. Thus, the vertical distance between the two lines in the chart at any point is the forecast error. Page 9: FOMC Intended Federal Funds Rate is the level (or midpoint of the range, if applicable) of the federal funds rate that the staff of the FOMC expected to be consistent with the desired degree of pressure on bank reserve positions. In recent years, the FOMC has set an explicit target for the federal funds rate. Page 10: Federal Funds Rate and Inflation Targets shows the observed federal funds rate, quarterly, and the level of the funds rate implied by applying Taylor’s (1993) equation ft*= 2.5 + π t –1 + (π t –1 – π* )/2 + 100 × (yt –1 – yt –1P )/2 to five alternative target inflation rates, π* = 0, 1, 2, 3, 4 percent, where ft* is the implied federal funds rate, π t –1 is the previous period’s inflation rate (PCE) measured on a year-over-year basis, yt –1 is the log of the previous period’s level of real gross domestic product (GDP), and yt –1P is the log of an estimate of the previous period’s level of potential output. Potential Real GDP is estimated by the Congressional Budget Office (CBO). Monetary Base Growth and Inflation Targets shows the quarterly growth of the adjusted monetary base implied by applying McCallum’s (2000, p. 52) equation Δbt = Δxt* − Δvta + λ ( Δxt* − Δxt −1 ), Δxt* = π * + Δyt* to five alternative target inflation rates, π* = 0, 1, 2, 3, 4 percent, where Δbt is the implied growth rate of the adjusted monetary base, Δy* is the 10-year t

Notes
Page 3: Readers are cautioned that, since early 1994, the level and growth of M1 have been depressed by retail sweep programs that reclassify transactions deposits (demand deposits and other checkable deposits) as savings deposits overnight, thereby reducing banks’ required reserves; see Anderson and Rasche (2001) and research.stlouisfed.org/aggreg/swdata.html. Primary Credit Rate, Discount Rate, and Intended Federal Funds Rate shown in the chart Reserve Market Rates are plotted as of the date of the change, while the Effective Federal Funds Rate is plotted as of the end of the month. Interest rates in the table are monthly averages from the Board of Governors H.15 Statistical Release. The Treasury Yield Curve and Real Treasury Yield Curve show constant maturity yields calculated by the U.S. Treasury for securities 5, 7, 10, and 20 years to maturity. Inflation-Indexed Treasury Yield Spreads are a measure of inflation compensation at those horizons, and it is simply the
Research Division Federal Reserve Bank of St. Louis

19

Monetary Trends
moving average growth in real GDP, Δνtα is the average base velocity growth (calculated recursively), Δxt–1 is the lag growth rate of nominal GDP, and λ = 0.5. Page 11: Implied One-Year Forward Rates are calculated by this Bank from Treasury constant maturity yields. Yields to maturity, R(m), for securities with m = 1,..., 10 years to maturity are obtained by linear interpolation between reported yields. These yields are smoothed by fitting the regression suggested by Nelson and Siegel (1987), R(m) = a0 + (a1 + a2 )(1 – e–m/50 )/(m/50) – a2 × e–m/50, and forward rates are calculated from these smoothed yields using equation (a) in table 13.1 of Shiller (1990), f(m) = [D(m)R(m) – D(m–1)] / [D(m) – D(m–1)], where duration is approximated as D(m) = (1 – e –R(m) × m)/R(m). These rates are linear approximations to the true instantaneous forward rates; see Shiller (1990). For a discussion of the use of forward rates as indicators of inflation expectations, see Sharpe (1997). Rates on 3-Month Eurodollar Futures and Rates on Selected Federal Funds Futures Contracts trace through time the yield on three specific contracts. Rates on Federal Funds Futures on Selected Dates displays a single day’s snapshot of yields for contracts expiring in the months shown on the horizontal axis. Inflation-Indexed Treasury Securities and Yield Spreads are those plotted on page 3. Inflation-Indexed 10-Year Government Notes shows the yield of an inflation-indexed note that is scheduled to mature in approximately (but not greater than) 10 years. The current French note has a maturity date of 7/25/2015, the current U.K. note has a maturity date of 4/16/2020, and the current U.S. note has a maturity date of 11/15/2020. Inflation-Indexed Treasury Yield Spreads and InflationIndexed 10-Year Government Yield Spreads equal the difference between the yields on the most recently issued inflation-indexed securities and the unadjusted security yields of similar maturity. Page 12: Velocity (for MZM and M2) equals the ratio of GDP, measured in current dollars, to the level of the monetary aggregate. MZM and M2 Own Rates are weighted averages of the rates received by households and firms on the assets included in the aggregates. Prior to 1982, the 3-month T-bill rates are secondary market yields. From 1982 forward, rates are 3-month constant maturity yields. Page 13: Real Gross Domestic Product is GDP as measured in chained 2000 dollars. The Gross Domestic Product Price Index is the implicit price deflator for GDP, which is defined by the Bureau of Economic Analysis, U.S. Department of Commerce, as the ratio of GDP measured in current dollars to GDP measured in chained 2005 dollars. Page 14: Investment Securities are all securities held by commercial banks in both investment and trading accounts. Page 15: Inflation Rate Differentials are the differences between the foreign consumer price inflation rates and year-over-year changes in the U.S. all-items Consumer Price Index. Page 17: Treasury Yields are Treasury constant maturities as reported in the Board of Governors of the Federal Reserve System’s H.15 release. Bureau of Economic Analysis: GDP. Bureau of Labor Statistics: CPI. Chicago Board of Trade: Federal funds futures contract. Chicago Mercantile Exchange: Eurodollar futures. Congressional Budget Office: Potential real GDP. Federal Reserve Bank of Philadelphia: Survey of Professional Forecasters inflation expectations. Federal Reserve Bank of St. Louis: Adjusted monetary base and adjusted reserves, monetary services index, MZM own rate, one-year forward rates. Organization for Economic Cooperation and Development: International interest and inflation rates. Standard & Poor’s: Stock price-earnings ratio, stock price composite index. University of Michigan Survey Research Center: Median expected price change. U.S. Department of the Treasury: U.S. security yields.

References
Anderson, Richard G. and Robert H. Rasche (1996a). “A Revised Measure of the St. Louis Adjusted Monetary Base,” Federal Reserve Bank of St. Louis Review, March/April, 78(2), pp. 3-13.* ____ and ____(1996b). “Measuring the Adjusted Monetary Base in an Era of Financial Change,” Federal Reserve Bank of St. Louis Review, November/ December, 78(6), pp. 3-37.* ____ and ____(2001). “Retail Sweep Programs and Bank Reserves, 19941999,” Federal Reserve Bank of St. Louis Review, January/February, 83(1), pp. 51-72.* ____ and ____ , with Jeffrey Loesel (2003). “A Reconstruction of the Federal Reserve Bank of St. Louis Adjusted Monetary Base and Reserves,” Federal Reserve Bank of St. Louis Review, September/October, 85(5), pp. 39-70.* ____ , Barry E. Jones and Travis D. Nesmith (1997). “Special Report: The Monetary Services Indexes Project of the Federal Reserve Bank of St. Louis,” Federal Reserve Bank of St. Louis Review, January/February, 79(1), pp. 31-82.* McCallum, Bennett T. (2000). “Alternative Monetary Policy Rules: A Comparison with Historical Settings for the United States, the United Kingdom, and Japa,” Federal Reserve Bank of Richmond Economic Quarterly, vol. 86/1, Winter. Motley, Brian (1988). “Should M2 Be Redefined?” Federal Reserve Bank of San Francisco Economic Review, Winter, pp. 33-51. Nelson, Charles R. and Andrew F. Siegel (1987). “Parsimonious Modeling of Yield Curves,” Journal of Business, October, pp. 473-89. Poole, William (1991). Statement before the Subcommittee on Domestic Monetary Policy of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, November 6, 1991. Government Printing Office, Serial No. 102-82. Sharpe, William F. (1997). Macro-Investment Analysis, on-line textbook available at www.stanford.edu/~wfsharpe/mia/mia.htm. Shiller, Robert (1990). “The Term Structure of Interest Rates,” Handbook of Monetary Economics, vol. 1, B. Friedman and F. Hahn, eds., pp. 627-722. Taylor, John B. (1993). “Discretion versus Policy Rules in Practice,” CarnegieRochester Conference Series on Public Policy, vol. 39, pp. 195-214. Note: *Available on the Internet at research.stlouisfed.org/publications/review/.

Sources
Agence France Trésor: French note yields. Bank of Canada: Canadian note yields. Bank of England: U.K. note yields. Board of Governors of the Federal Reserve System: Monetary aggregates and components: H.6 release. Bank credit and components: H.8 release. Consumer credit: G.19 release. Required reserves, excess reserves, clearing balance contracts, and discount window borrowing: H.4.1 and H.3 releases. Interest rates: H.15 release. Nonfinancial commercial paper: Board of Governors website. Nonfinancial debt: Z.1 release. M2 own rate. Senior Loan Officer Opinion Survey on Bank Lending Practices.

20

Research Division Federal Reserve Bank of St. Louis

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