Board of Governors of the Federal Reseme System InternationalFinance DiscussionPapers Number 537 January 1996

USING MEASURESOF EXPECTATIONSTO IDENTIFY THE EFFECTS OF A MONETARYPOLICY SHOCK AlIan D. Brunner

NOTE: InternationalFinanceDiscussionPapers are preliminary materialscirculatedto stimulate discussionand criticalcomment. References in publicationsto InternationalFinance Discussion Papers (other than an acknowledgementthat the writer had access to unpublishedmaterial) should be cleared with the author or authors.

ABSTRACT This paper considersan alternativeeconometricapproach to the VAR methodologyfor identifyingand estimatingthe effects of monetary policy shocks. The alternativeapproach incorporates availablemeasuresof market participants’expectationsof economicvariables in order to calculateeconomicinnovationsto those variables. In general, expectationsmeasures should provide important additionalinformationrelative to a standard VAR analysis, since market participants presumably use a much richer informationset than that assumed in a typical VAR model. The resulting innovationsare easily incorporatedin a VAR-like fimework. The empirical results are quite surprising. First, when expectationsare incorporated,the variance of all innovationsis reduced substantially. Second, innovationsto the federal funds rate derived using the alternativeapproach are only somewhatcorrelatedwith their VAR counterparts, while innovationsto other economicvariables are essentiallyuncorrelated. Still, monetary policy shoch derived using the two approachesare a(so somewhatcorrelated, since innovationsto prices and economic activity explainonly a small fraction of innovationsto the fderal funds rate. As a consequence,the impulseresponsesof economicvariables to the two sets of monetary policy shocks have remarkably similar properties.

Using Measures of Expectations to Identi& the Effects of a Monetary Policy Shock Allan D. Brunnerl

I. Introduction VectorautoregressiveVAR) models, popularizedby Sims (1980), have been used widely and ( extensivelyby economiststo study the dynamic behaviorof economicvariables. The appeal of VAR features relative to other econometric modeling approaches. models is likely due to severalattractive
These features include a minimum number of identi~ing restrictions, few exogenousvariables,and an

ease of implementation. Still, the use of a VAR model requires a few strong assumptionsabout the availabilityof informationto economicagents, some of which are also common to other moreoveridentifiedeconometricmodels. This paper considersan alternativeapproach that address some possible shoticomingsof the VAR approach,while maintainingmany of its appealing features. The estimationof a structuralVAR m~el generally requires two steps. First, a vector of
economic variables, ~, is regressed on several lags of itself. The set of lagged variables (dated t-1 and earlier) is assumed to be a good proxy for the information set that is available to economic agents just prior to the determination of Xt. As a consequence, VAR residuals are interpreted as economic innovations, new informationabout Xt that becomesavailableat time t. In the second step of

estimation, the innovationsare decomposedinto orthogonalshoch using one of several methods. These shocks are ofien given a structuralor behavioralinterpretation. This paper is concernedprimarily with two implicit assumptionsthat are made in the first step 1 The author is an economistin the InternationalFinance Division, Board of Governors of the Federal Reserve System. The author would like to thank Neil Ericsson, Bill Helkie, Dale Henderson, and workshop participantsat the Board of Governorsfor usefil commentson earlier versions of this paper. He is also grateful to Larry Christian, Charlie Evans, Christian Gilles, Vincent Reinha.rt,and Glenn Rudebuschfor helpfil discussionsand to AthanasiosOrphanidesand James Walsh for providing the MMS data. This paper representsthe views of the author and should not be interpretedas reflecting the views of the Board of Governorsof the Federal Reserve System or other member of its staff. The author is responsiblefor any errors.

of the VAR methodologythat may not accord well with reality. First, since many economic data fora ptiicular period are not released until subsequentperiods, the informationset that is typically used by VAR modelscontains informationthat is not yet availableto some economicagents. Second, there is an assumptionthat the appropriate informationset containsonly laggedvalues of ~. In actuality,the comectinformationset likely contains lags of many other economicvariablesnot contained in ~. In this paper, the first problem is addressedby simply dropping from the information set those data that are not actually availableto economicagents. The second problem is mitigated by incorporating market participants’expectationsof economicvariables. These expectationsmeasures should bring importantadditionalinformation into the analysis, since market participantspresumably use a much richer informationset (relative to a standard VAR model) to make their forecasts. Importantly, the expectationsmeasuresserve as an efficient and convenientway to expandthe implied information set beyondthat used by a typical VAR model. In order to illustratethe alternativeeconometricmethodology,this paper considersthe task of identi&ing monetary policy shocks and estimatingtheir effects on various macroeconomicvariables. Indeed, there has been a great deal of recent interest in this topic. For example,Christian and Eichenbaum(1992) and Leeper and Gordon (1992) examined the “liquidi~ effects” of monetary policy shocks,the immediatereaction of economicvariablesto unexpectedchangesin the stance of monetary policy. More recently, Bemanke and Blinder(1992), Strongin (1992), Gordon and Leeper (1995), Christian, Eichenbaum,and Evans (1994) and Brunner (1994) have explored alternative ways of identi~ing monetary policy shocks and tracing out their effects on the macroeconomy. Importantly, much of this research was conductedusing vector-autoregressive(VAR) models. The empirical results are quite surprising. Firs~ when expectationsare incorporated,the varianceof all innovationsis reduced substantially. Second, innovationsto the federal finds rate using the two methodologies-- using a VAR model and using market expectations-- are only

2

somewhatcorrelated. The correlation betweenthe mo is .56-- enough so that the VAR approach cannot be rejected out of hand, but not so large that the approach is validated. Innovationsto other economicvariables (prices and indicatorsof economicactivity) are essentiallyuncorrelated. Still, monetary policy shoch derived using the two approachesare also somewhatcorrelated, since innovationsto prices and economicactivity explain only a small fraction of innovationsto the federal finds rate. As a consequence,the impulseresponsesof economicvariablesto the two sets of monetary policy shock have remarkably similar properties.
The remainder of the paper proceedsas follows. Section 11demonstrateshow the VAR

methodologycan be replaced with an alternativeapproach that incorporatesmeasures of expectations, Section III examineswhether selectedmeasuresof market expectationsare, in fact, accurate predictions of actual economicoutcomes. It also compareseconomic innovationscalculatedwith both the VAR and alternativeapproaches. Similarly, section IV computes structural shocks using both methods, and it examines their effects on several economic variables, Section V provides some
concluding remarks.

II. Using Measuresof Expectations This section has two objectives. The first objectiveis to review the traditional VAR approach, popularized by Sims (1980), and to describesome potentialprobIemswith that modeling strategy. The second objective is to outline an alternativeapproachthat addressesthe possibleshortcomingsof the VAR approach. The main advantage of the alternative approach is that it incorporates measures of
market participants’ expectations in the estimation of economic innovations, while maintaining many of the appealing features of the VAR modeling strategy. This approach is illustrated by outlining the necessary steps to identi& monetary policy shocksand to trace out their effects on selectedeconomic

variables. This particular applicationis pursued firther in subsequentsectionsof the paper.

The VAR Approach Supposethat an economist is interested in studyingthe dynamic behavior of an nxl vector of economicvariables,y. One modeling strategy is to estimatea structural VAR(p) model of ~: AOX, = p + A(L) Xt.l + ~t (1)

where p is an nxl vector, A(L) = Al + A2L + ... + APLP1,Ai is an nxn matrix, L is the lag operator, and ~t is a nxl vector of structural (orthogonal) shocks. The estimationof a structural VAR model generally requires two steps. The first step is to estimate the reduced-formrepresentationof ~, where ~ is regressedon p lags of itselfi

x,

= p’ + B(L) Xl-l + ut

(2)

where p’ is an nxl vector, B(L) = B1+ B2L+ ... + BPL~l, Bi is ~ nxn matri~ and LIt s a nxl vector i containingthe reduced-fore VAR innovations. Note that, by assumption,Utcontainsall new informationabout ~ that becomesavailableduring period t, and the only new informationthat is obtained during period t is about variables dated at time t. In the second step, the VAR innovations(ul) are used to estimate A. and to recover the structural shocks(qt). Equatingequations(1) and (2) impliesthe following relationshipbetweenthe reduced-form innovationsand the stmctural shocks: A. u, = Tlt (3)

1n order for AOand ql to be identified,AOmust contain at least n(n-1)/2 zero-restrictions. Sims (1980) assumedthat AOwas lower-triangularin order to ofiogonalize the innovations. With this assumption,A. and the qs can be estimated with OLS, simply by regressing each innovationon other appropriateinnovations. In contras~ Sims (1986) Bemanke (1986) consideredalternative and

4

decompositions,where sufficient zero-restrictionswere imposedon AObased on economictheory. rn this case, more sophisticatedestimationmethods, such as instrumentalvariabIes or maximum likelihoodare required.2 once A. and the qs have been estimated,the remaining structuralparameters are calculatedby observingthat equations(1) and (2) also imply Ai = *O-lBi(i=l,...p). The s~ctural model can then
be used to study the time-series propertiesof the data in a number of ways. Ofien economistsare

interestedin examiningimpulse response finctions, which capturethe dynamic responsesof ~ to the set of structural shocks(q). The impulseresponse functionscan be obtained by invertingthe VAR, yielding the vector-moving-average(VMA) representation:

x, = =

IA. -A(L) ]-l p + IA. -A(L) ]-l q,
(4)

P’/

+

C(L) q,

where p“ is an nxl vector, C(L) = C. + CIL + ..., and Ci is an nxn matrix. The impulse responseof

* any element of ~ to a particular structural shock correspondsto the appropriate elements of C(L). In addition,the VMA representationcan also be used to decompose the forecast emors or the variance of
~ into components attributable to individual elements of qt. There are a number of attractive features of the VAR methodologythat have led to its popularity. First, the identificationof the structuralVAR model in equation (1) is achievedwith a minimum number of identifyingrestrictions. Indeed, restrictionsare oftenplacedonlyon Ao,leaving A(L) unrestricted. In contrast, other structuralapproachesofien involve large numbers of restrictions

on A(L) that are ofien not tested and that may or may not be guided by economic theory. Since the parametersof a VAR model are relatively unconstrained,some economistsconsider a VAR model to

2 See Blanchard and Quah ({989) for an alternativeidentificationscheme that places restrictions on the 1ong-runeffects of qt.
5

be a relativelyatheoreticalapproach, allowing for a (possibly) richer set of dynamicsthan a moreoveridentifiedmodel would allow. Second,there are ofien no exogenousvariables in the VAR model other than constants, seasonaldummies, and deterministictime trends. As a consequence,the emphasis is placed on the effects of structuraldisturbanceswithin the context of a filly-articulated system of endogenous variables,rather than on the effects of certain economicvariables(endogenousor exogenous)on other variables. Finally, since each structural equation in the VAR model is treated symmetricallywith respect to explanatoryvariables,the VAR methodologyis easily and quickly implemented,ofien with only a few lines of computercode. Potential Problemswith VARS The estimationof AOand q~in equation (3) dependscritically on estimates of the VAR innovations(u~),the “first-stage”regressionsshown in equation (2). There are at least two reasons why the VAR innovationsin equations(2) may be poor proxies for the true innovationsto ~. First, there is good reason to believethat the informationset implied by a typical VAR contains information that is not yet availableto economicagents. For example, the VAR methodologyassumesthat all lagged values of Xl are publiclyobsemableat the end of period t-1. Unfortunately,most economic
data for a particular period are not availableuntil subsequentperiods and may be subjectto revisions

for months, weeks, or even years afier their initiai release. As a consequence,if some variableson the right-hand side of the regression in equation(2) are not actually observableat time t-I, the innovations will be improperlyestimated. Similar)y,the VAR methodologyassumesthat the set of informationavailableto economic agents at time t-1 containsonly lags of ~. In aIl likelihood,the appropriate information set is much richer than the one implied by a typical VAR model. If there exists additionalinformationat time t-1 that helps predict ~ and that is omitted from the regression in equation (2), the resulting estimated 6

innovations are not true innovations and are inappropriate for identifying structural shocks to ~. Importantly, either of these two problems can be overcomewith proper modificationsto the

structural VAR in equation (1). In the first case, the structuralmodel could be constructedso that only informationthat is actually avaiiabie is used as an explanatoryvariable. In the second case, ~ could be expandedto includeany necessary additionalexplanatoryvariabies. Unfortunately, increasingthe dimensionsof ~ is ofien undesirableor simply infeasible. Since even small VAR modeis typically require the estimation of a large number of parameters,adding more variabiesto the VAR system wouid only further exacerbateany problemswith few degrees-of-freedom. An AlternativeAo~roach This paper considersan alternative econometricapproachto the VAR methodologythat attemptsto gauge the importanceof the shortcomingsdescribedabove. First, the probiem of assuming too much in agents’ informationset is addressed by reconstructing~ so that only informationthat is actually known at time t-1 is used to caicuiate innovations. Second,the probIem of excluding informationthat agents do have availabie is addressedby includingavailablemeasures of market
expectations in the estimation of economic innovations, These measures seine as a convenient and

eficient way to includeail reievant informationnecessaryto calculateinnovations. In order to illustratethe alternativeapproach, considerthe task of identi~ing monetary policy shocks and of tracing out their effects on various economicvariablesof interest (~). Supposethat the

Federal Reserve’spolicy instrumentis the federal funds rate -- one of the variables in ~ -- and that the Fed’s reaction function -- analogousto one of the structuralequationsin equation (1) -- can be written as foliows: FFRt = @ + y [ X;J X;J.* 1’+

q

** n;p +

(5)

where ~ is a constant, y is a nx 1 vector, Xl ~ is a vector of variables describing period t and observable 9 7

at time t, X2,tis a vector of variablesdescribingperiod t and observableat time t+], and qml denotes a monetary policy shock. Note that with this specification,the federal finds rate responds contempo~eousiy to new informationabout X1,~ X2,t-1. Finally, y containssome zero elements for and identificationpurposes,analogousto the zero-restrictionson Ao. As with the VAR methodology,the first step is to calculate innovationsto the federal funds rate, X1,tand Xz,t-1:

(6)

x2J-1

=

a3 +

~3(L)[ X;,-l X;4-Z]’ + 63E[X2,t-I I~-l 1 +U:2 P

p where i(L)samatrixolynomial, E[. I~t-l] representsan observablemeasure of market participants’ ~ i expectationsof a particularvariable, and ~t-l is an unobsenable informationset that is implied by the observed expectationsmeasure. There are a few interestingaspectsof equation (6) that are worth discussing. First, it could be the case that using only lags of Xl,t and X2,~.1 required to calculate are innovationsto the federal funds rate, to Xl,t and to X2,t-1. That is, the inclusionof the expectations measures adds no additionalexplanatorypower to the regressionsin equation(6). This possibility correspondsto the testablehypothesisthat ~i is equal to zero. On the other hand, it could be the case that market participants’forecastsof these variablesare unbiasedand eficient. That is, includingthe expectationsmeasures in the regressionsin equation(6) actuaIlypreclude using lags of other variables, if market participantsuse all wefi2 informationto make their forecasts. This possibilitycorresponds to the testable hypothesesthat &iis equal to one (a test of unbiasedness)and that ~i(L) are equal to zero (a test of efficiency). I

In the second step of the alternative approach, innovationsto the federal funds rate are regressedon innovationsto all necessa~ variables in the Fed’s reaction function: Ut
FFR

= yl U:l + y2u;

MP + Vt

(7)

Analogousto equation(3) for the VAR approach, the regression in equation (7) yields a set of structural monetary policy shocks. Finally, analogousto the inversionprocess in equation(4), >-- the original variables of interest -- can be regressed on contemporaneousand lagged values of the structural shocks: (8)

where p(L) is a matrix polynomial. The estimate of p(L), along with estimates for the structural

shocks,can be used to calculate impulse responsetinctions, forecast error decompositions, and variancedecompositionsin the usuai ways. -* Of course, this alternativeapproach is not without some potentialpitfalls, some which it shares with the traditional VAR approach. First, as with a conventionalVAR model or any other structural model, the econometricianmust speci~ which economicvariables in the Fed’s reaction finction contain newly-availableinformation(Xlt and X2~.1 above). Any importantvariable that is omitted from the analysis wil[ bias the estimatesof the structural shocks. In addition,as illustrated in the above example, there must be availableand reliable measuresof market participants’expectationsfor the federal-funds rate and for each relevant variable in the Fed’s reaction finction. Finally, as with a conventionalVAR model or any other structural model, there could be simultaneitybetween the federal funds rate and variablesthat are in the Fed’s reaction finction. In that case, one must find
additional innovationsto use as instrumentsto estimatey in equation (7). This requires still more

assumptionsabout which innovationsto use as instrumentsand additionalexpectationsmeasures in

9

order to derive the required instruments. 111.Economic Innovations .

The previoussection of the paper described an alternative econometric approach to identi&ing
monetary policy shocks and calculating their effects on economic variables. This section proceeds with the first step of that approach-- the derivationof the economic innovationsusing available

measuresof expectations,as well as lags of traditionalmacroeconomicvariables. These innovations are contrasted with those derived from a traditionalVAR model, and they are used in the next section to calculate monetary policy shocks, as well as impulseresponse functionsfor several variables with respect to a monetary policy shock. A Benchmark VAR
In order to contrast results from the alternative approach with those from a traditional VAR, a benchmark VAR model is required. There has been a great deal of recent debate concerningthe

appropriatemonetary policy instrumentand the appropriateset of economic indicatorsto include in the Federal Reserve’s reaction finction -- see, for example, Bemanke and Blinder (1992), Strongin (1992), Gordon and Leeper (1995), Christian, Eichenbaum,and Evans (1994), and Brunner (1994). Although the recent consensusappearsto be that the federal finds rate best representsthe Fed’s operational instrument,there is little agreementon a reasonableset of economic indicatorsto include in the Fed’s reaction function. The following set of economic variables, however, is representativeof variables used in that literature,and they will seine as a benchmark for subsequentanalysis:

x, = [ Y, CPIt PCOM, FFR, NBR, ~~,

Mlt ]

(9)

where Y is some measure of economicactivity,CPI is the consumer price inde~ PCOM is a price index of sensitive commodities,FFR is the federal finds rate, NBR is non-borrowedreserves, TOTR

10

is total reserves, and Ml is the M 1 monetary aggregate. 3 It is also assumed that stmctural shockscan be identifiedwith a triangular decompositionbased on the ordering in equation (9) and that monetary
policy shocks are associated with structural shocks to the federal finds rate. This benchmark VAR model corresponds to one of the monthly models studied by Christian, Eichenbaum, and Evans (1994). As they discuss, this identification scheme is somewhat defensible when using monthly data,

as will be the case in this paper.4 With these assumptions,the Fed is assumed to respond to: i) contemporaneous changes in
output, consumer prices, and commodity prices, ii) lagged values of all variables,and iii) a monetary

policy shock:

(lo)
That is, using equation (3), innovationsin the federal finds rate are assumedto respond contempora-

neously to innovationsin output, consumer prices and commodityprices:
Ut
FFR

= y, Uty + y2 u;p’

+ y3 U;coM

MP + nt

(11)

As in equation (2), all VAR innovations are derived by regressing each variable in ~ on several lags
of ~:

x, = p’ + B(L)x,-l + Ut

(2)

As discussed in the previous section, there are at least two worrisome aspectsof the decomposition of the federal funds rate in equation (11). First, neither the CPI nor most broad measuresof

s With the exceptionof the federal funds rate, all variablesare expressed~ log levels. 4 The primary purpose of this paper is to illustrate an alternativeestimationstrategythat incorporatesexpectationsmeasures. It is not to argue the merits of any particular set of economic variablesor any particular identificationscheme.
11

economicactivity for a given period are publiclyobservableduring that period. This means that the innovationsused as regressors in equation (11) have been derived using informationthat is not yet availableto the Fed or to othermarketparticipants.Second,all innovationshave been derived by assuminga limited information set for the Federal Reserve. Even if the Fed respondsonly to

o are innovationsin Y, CPI, and PCOM,its expectations f thosevariables likelybasedon a much richerinformation setthanjust lagsof ~. Accordingly, thereis a compelling caseto be madefor: i) excluding andCP1t.lfromthe listof regressors hen calculatingthe innovationsto FF~ and Y~-l w
and PCOMt,ii) deriving innovationsto Y~-1 CPIt-l rather than Yt and CPIt for use in equation (11), and iii) deriving all innovationswith an assumedricher information set for the Fed by incorporating availablemeasuresof expectations. This is the focus of the next subsectionof the paper. Deriving Innovations As shown in Table 1, there are severalavailableoptions for measuring market participants’ expectationsof the federal funds rate, economicactivity,and the consumer price index. First, there are severalavailablemarket readingson the expectedfederal funds rate. Banks can contractto bonow or lend federal funds for l-month intewals at the term-federal-fundsrate. Thus, if markets are forward-looking,the 1-monthterm-federal-finds rate obsemed on the 1astday of a month (TFF~.l) shouldbe a good predictor of the month-averagefederal funds rate for the following month.
Similarly, there are other fo~ard-looking interestrates, including the l-month Treasury bills rate

(TB~-l), the l-month CD rate (CD~-l), and the l-month Eurodollarrate (ED~.l).

Finally, if the

Fed is pursuing a finds-rate targeting strategy,then the federal finds rate should reflect all economic informationavailable to the Fed, and the laggedfederal finds rate (FF~.l) can also sewe as a forecast of the current fderal funds rate. The federal tinds rate is plotted against each measures in Figure 1. For the remaining variables, Money Market SeNices (MMS) provides frequent forecasts for upcomingeconomicreleases for CPI inflationand for several monthly indicatorsof economicactivity 12

growth, includingthe unemploymentrate (UR), retail sales (RSLS), and industrialproduction(1P). Actual and forecasted values for each of these variables are shown in Figures 2 and 3.
An important question concerns whether these measures of expectations are, in fact, eficient and unbiased estimators of future values of the variables. Table 2 examinesthis questionfor the forward-looking interest rates. The table summarizes regression results based on:

(6-1) E[FFR, I~t-l] + U:FR

(12)

where Xl ~= [ PCOMt FF~
q

NBRt TOTRt Mlt ~’ and X2~= [ Y~ CP1~ and where EIo] ]’, 9

represents a foward-looking interest rate. In particular, the table presentssignificancelevels for four Wald tests and the R2 for each regression. The WaId tests correspondsto the following hypotheses:i)

that there is not a time-invariantrisk premium (a=O), ii) that the forward-lookinginterestrate is an efficient estimator (~s=O),iii) that the forward-lookinginterestrate is an unbiasedestimator(5=1), and iv) that the forward-lookinginterest is both efficient and unbiased. An R2 of zero would also be a general indicatorthat additional information(other than the foward-looking interest rate) providesno additionalpredictivepower. The results are generalIydisappointing. Although the term federal finds rate, the CD rate, and the Eurodollarrate appear to be unbiasedestimatorsof the federal funds rate, none of the forwardIookinginterestrates are efficient estimators. Other than the obvious explanation-- that banksmake systematicforecasterrors -- these results could be interpreted in two ways. First, the additional informationcould be capturing a time-varying risk premium. This argument is most plausiblefor the Treasury bill rate, which shows evidenceof a time-invariantrisk premium (a not equal to zero). A
second explanation might be that banks exhibit some habitat persistence, preferring not to always arbitrage away any predictable differences between current market rates and expected fiture federal

funds rates. Still, the R2S in these regressions seem somewhat large to be associated with a time-

13

varying risk premium or habitat persistence. In any case, while the market interest rates provide additionalusefii information(5=0 is rejected in all cases), they do not by themselvesprovide complete informationfor forecastingthe federal funds rate. The ability of market p~icipants to make accuratepredictionsof economicactivity -- as measuredby MMS forecasts-- are evaiuated in Table 3 using the following regression: (13)

where 2* correspondsto the variables listed in the first column of the table. These results are somewhatmore promisingthan those for the federal funds rate. First, only forecastsof retail sales appear to be inefficient. Importantly,this result is consistentwith the previous conjecturethat the inefficiencyof the foward-looking interestrates is due to the presenceof a timevarying risk premium rather than because banks make systematicforecast errors. On the other hand, MMS forecastsof two variables-- retail sales and the unemploymentrate -- are biased, tending to follow the actual values down when the variable is falling and vice versa. Similarly, the joint hypothesisof efficiency and unbiasednesscan be rejectedat conventionalsignificancelevelsfor retail
salesand the unemploymentrate. In summary, as before, while the MMS forecasts provide additional

useful informationfor forecastingthese variables,they do not by themselvesprovide complete information. Althoughthese expectationsmeasuresappear to includeimportantadditional informationon a statisticalbasis for forecastingthese economicvariables,another important question is whether these measuresare important in an economic sense. This question is explored in Table 4, which presents the variancesand cross-correlationmatrix for several sets of innovationsfor the variablesdescribed above. Panel (i) lists the variancesand the cross-comlation matrix for three sets of innovationsto the federal funds rate. The first set was derived using the standardVAR methodology,by regressingthe

14

federal funds rate on 12 lags of each variable in ~. 5 The second set was derived in a similar fashion, exceptthat the first lag of UR and CPI were excluded from the regression, since they are not observableby the Fed at time t-1. Since some information is deleted from the assumed information set, the variance of these innovations is a bit larger, although they are highly comeIated with the
standard VAR innovations. The third set Was calculated by excluding the first lag of UR and CP1 but
inc]uding the term

federal funds rate (TFF~-l) as a regressor. Interestingly, the variance of these

innovations is substantially smaller than for the other two sets of innovations, although the innovations are still somewhat comelated with the other sets.

Panels (ii) and (iii) provide similar informationfor innovationsto the unemploymentrate and to the consumerprice index. It should be noted, however, that the standardVAR innovationsare to URt and CPIt, while the other two sets of innovationsare to U~-l and CPIt.l, since it is assumed in
the alternative approach that the Fed responds contemporaneously to the Iatter innovations. There are

several important features of these results. First, innovations derived using the alternativeapproach

are essentiallyuncomelatedwith the standard VAR innovations. Second, as before, including expectationsmeasuressubstantiallyreducesthe varianceof the innovations. Still, the innovationsto U~-l and CP1t-l-- derived with and with the expectationsmeasures-- are highly correlated(.76 and .68, respectively). The main results of this section can be summarizedas follows. First, availablemeasuresof market participants’expectationsof economicvariables are not by themselvessufficient for developing innovationsto those variables. That is, the expectationsmeasuresare sometimesbiased and ineticient estimators. Still, they provide significantadditionalinformationrelative to standard VAR techniques.
In alI casesexamined, including the expectations measures reduced the innovation variance by at least

s AII of the results presented ill Table 4 were calculated using the unemployment rate as the measure of economic activity and the term federal funds rate as the expectations measure for the funds rate. Similar results were obtained with other measures. 15

one-half. Finally, innovationsto the federal finds rate derived using the alternativeapproach are only somewhatcorrelatedwith standard VAR innovations. Innovationsto other macroeconomicvariables are essentiallyuncorrelatedwith their standard VAR counterparts,primarily becausethe former are innovationsto laggedvalues of these variables rather than contemporaneousvalues, On balance,these results could have serious implicationsfor the identificationof monetary policy shocks-- which rely on correctly estimated innovations-- as well as for any conclusionsto be drawn about the effectsof these shocks on other macroeconomicvariables. These implicationsare the focus of the next sectionof the paper. IV. MonetaryPolicy Shocks The previoussectioncalculatedand examinedthe time-seriespropertiesof innovationsto the federal finds rate, the CP1,and various indicatorsof economicactivity. These innovationswere calculatedusing a standardVAR approach and using an alternativeapproach which incorporated market expectations. This section uses these innovationsto derive structural shocks that will be interpreted as monetary policy shocks. The effects of these shockson various macroeconomic variables is also examined. Policv Shocks As discussedearlier, innovationsto the federal funds rate can be decomposedusing the relationshipshown in equation (1O). That is, the residualsfrom a regressionof federal finds rate innovationson innovationsto economicactivity, the CPI, and PCOM can be interpretedas monetary policy shocks -- the exogenouscomponentof monetary policy. An importantquestion that is addressed is whether monetarypolicy shocks derived with a standardVAR approach have similar time-series propertiesto those derived with the alternativeapproach. Table 5 presentsthe decompositionresults, using the innovationscomputed in the previous

16

section. Along with the parameter estimates (the ys), the table lists the R2 for each regression. The first three rows of the table correspondto a regressionsusing standard VAR innovations,where
economic activity is measured by, respectively, the unemployment rate, retail sales, and industrial
production. The next three rows correspondto regressionsusing the modified VAR approach,and the

last three to regressionsthat use innovationsderived using market expectations. The importantresults in the table can be summarizedas follows. First, as indicatedin the first line of each set of regressions,the federal funds rate respondscontemporaneouslyto new information about the unemploymentrate. This is true regardlessof how the innovationsare calculated,although
the effects are less strong for the alternativeapproach than for the other two methods. (This result is

also robust to other expectationsmeasures for the federal finds rate other than the term federal funds rate.) By contrast, the federal funds rate does not respondto new information about retail sales or the CPI and only weakly to innovationsin industrialproduction. This could be attributableto the fact -b that retail sales and the CPI are more volatile series than the unemploymentrate, and they are also subjectto many more revisionsthan the unemploymentrate. The Fed also appears to respond contemporaneouslyto PCOM, althoughthe estimated responseis not robust to how innovationsare calculated. On balance,these results are consistentwith Brunner (1994), who found that the unemploymentrate is one of the few economic indicatorsthat the Fed has respondedto consistentlyin the post-war era, whereasthe Fed has not respondedvery strongly to price developmentsand to other
indicatorsof economic activity in recent years.

It is also interestingto observe that when additional information is used to calculateeconomic innovations(the third set of regressions),many of the regressorsbecome less significant or even insignificant. This suggeststhat part of their role in the first two
setsof

regressionsis not causal.

Rather, they are serving as covariateswith informationthat has been omitted in the standardand

17

modified VAR approaches. Finally, it is impotiantto note that the R2 for all of the regressionsin Table 5 are quite low. In other words, althoughthe responseof the federal funds rate to some of these economicindicatorsis statisticallysignificant,these innovationsaccount for only a small fraction of the varianceof federal funds rate innovations. This result is also consistentwith Brunner (1994), who concludedthat between 85 and 100 percentof the variance of innovationsto the federal funds rate can be attributed to monetary policy shocks. ASa consequence,the time-series propertiesof the monetary policy shocksthat are implied by the regressionsin Table 5 are nearly the same as the propertiesof the innovationsto the federal fundsrate that are shown in Table 4. Impulse Responses The final task of this paper is to examine the effects of monetary policy shocks on the macroeconom For the VAR model, these effects can be calculatedby invertingthe VAR model, as y. shown in equation (4). For the alternativeapproach, impulseresponsefinctions can be calculatedby regressing W,, a variable of interest,on several lags of the estimatedmonetary policy shocks:

(14)

Note that a few lags of W~are includedin the regression. It was found that these fags were necessary to stabilizethe estimatesof Pzi,especiallywhen Wt is a non-stationaryvariable.b It is also important to point out that this approachfor computing impulse responsefunctionsis reminiscentof Bamo’s (1977, 1978)approach for examiningthe effects of unanticipatedmoney, althoughthe identificationof the regressors (the Es) is quite different.

6 This was the case for most variablesexamined in this paper. 18

Figure 4 presents impulse response functions for several macroeconomic variables, using

monetary policy shockscalculatedusing both methodologies. The impulse responsesto a VAR shock (the solid lines) were calculatedusing shocks derived from a VAR model that includedthe unemployment rate as the indicatorof economicactivity. That is, these impulseresponses are basedon the monetary policy shocks calculatedin the first row of Table 5. Confidencebounds for the VAR impulseresponsefunctions are also plotted (the long-dashedlines), Similarly, impulse responsefinctions for the market expectationsmodel (the short-dashed lines) were calculatedusing the unemploymentrate as the indicatorof economic activity and using
expectations measures as discussed earlier. The regressions in equation (14) included three lags of the dependent variable (q=3)and24 Iagsofthe monetary policy shocks (~24). Inaddition, consistent

with the previous analysis, the regressions for UR, CPI, and PCOM did not include the contemporaneous value of the monetary policy shock (e~p~). In other words, the assumptionis that these particular

variablesdo not respond within the period to monetary policy shocks. The results are quite surprising. Although the two sets of monetary policy shocks -- derived using a VAR model and using market expectations-- are only somewhatcorrelated, they have remarkablysimilar effects on macroeconomicvariables. As shown in panel (a), both shocks have a persistent,positiveeffect on the unemploymentrate. Panel (b) illustratesthe well-known “price puzzle,”the counter-intuitiveresult that consumer prices increasefor a few months following a contractionarymonetary policy shock. Evident[y,the market expectationsmeasure of the policy shock suffers from the same defect as the VAR measure. That is, as discussedby Christian, Eichenbaum, and Evans (1994), there is some variable -- likely some measure of raw material or labor costs -- that affects contemporaneouslyboth the federal funds rate and the CPI. As shown in panel (c), however, both sets of shocks have a small negative(but insignificant)effect on commodityprice inflation. As shown in panel (e), both sets of shocks have a strong liquidityeffect on NBR, consistent

19

with the effects documentedby Leeper and Gordon (1992), Christian, Eichenbaum,and Evans

(1994), and Brunner (1994). The effects ofa monetary policy shock are also seen (eventually)in TOTR and Ml, shown in panels(f) and (g), respectively. V. Conclusion Thispaperhasconsidered alternative conometricapproach the VAR methodologyfor an e to identi~ing and estimatingthe effects of monetary policy shocks. The alternativeapproach incorporates available measuresof market participants’expectationsof economicvariables in order to calcuIateeconomic innovationsto those variables. In generaI, measuresof expectationsshould provide impotiant additional informationrelativeto a standard VAR analysis, since market participantsuse a much richer information set to make their forecaststhan the information set that is assumed in a typical VAR model. The resulting innovationsare easily incorporatedin a VAR-like fimework, simiiar to the approach taken by Bamo(1977, 1978)to examine the effects of unanticipatedmoney on economicvariables. The empirical results are quite surprising. First, when expectationsare incorporated,the variance of all innovationsis reduced substantially. In all cases examined,the varianceswere reduced by at least one-half. Second, innovationsto the fedeml finds rate using the two methodologies-using a VAR model and using market expectations-- are only somewhatcorrelated. innovationsto
other economic variables are essentiallyuncorrelated. Still, monetary policy shocb derived using the

two approachesare also somewhatcorrelated,since innovationsto prices and economicactivity explain only a small fmction of innovationsto the fedeml finds rote. As a consequence,the impulse responsesof economicvariablesto the two sets of monetary policy shockshave remarkably similar properties.

20

REFERENCES
Bemanke, Ben (1986), “AlternativeExplanationsof the Money-IncomeCorrelation,”in Karl Brunner and AlIan Meltzer, eds. Carnegie-Rochester Conference on Public Policy, Real Business Cycles, Real Exchange Rates, and Actual Policies, 25:49-100. Bemanke, Ben and Alan Blinder (1992), “The Federal Funds Rate and the Channels of Monetary Policy Transmission,” American Economic Review, 82:901-921.

Barre, Robeti B. (1977). “Unanticipated Money Growth and Unemployment in the United States,”
American Economic Review, 67(2): 101-15.

Barre, Robert B. (1978). “Unanticipated Money, Output and the Price Level in the United States,”
Journa! of Political Economy, 86(4):549-80.

Blanchard,Olivier, and Danny Quah (1989), “The Dynamic Effects of Aggregate Demand and Supply Disturbances,”American Economic Review, 79:655-673. Brunner, AlIan D. (1994), “The Federal Funds Rate and the Implementationof Monetary Policy: Estimatingthe Federal Reserve’s ReactionFunction,”InternationalFinance DiscussionPapers, No. 466, Board of Governors of the Federal Resewe System, Washington,D.C. Christian, LawrenceJ. and Mtiin Eichenbaum(1992), “LiquidityEffects, Monetary Policy and the BusinessCycle,” American Economic Review, 82:346-53. Christian, LawrenceJ., Martin Eichenbaum.~nd Charles L. Evans (1994), “Identificationand the Effects of Monetary Policy Shocks,” Federal Reserve Bank of Chicago Working Paper 94-7.
Gordon, David B. and Eric M. Leeper (1993), “The Dynamic Impacts of Monetary Policy: An Exercise in Tentative Identification,” Federal Reserve Bank of Atlanta Working Paper Series, Working Paper 93-5.

Leeper, Eric M. and David B. Gordon (1992). “In Search of the LiquidityEffect,” Journal of
Monetary Economics, 29:341-69.

and Sims, ChristopherA. (1980). “Macroeconomics Reality,”Econometric, 48: 1-48. Sims, Christopher(1986), “Are ForecastingModels Usable for Policy Analysis?” Quar/erZyReview, Federal ReserveBank of Minneapolis,Winter:xxx-xx.
Strongin, Steve (1992), “The Identificationof MonetaryPolicy Disturbances:Examiningthe Liquidity

Effect,” Federal Reseme Bank of Chicago Working Paper 92-27.

21

Table 1. Available Monthly Measures of Market Participants’ Expectations of Selected Economic Variables

EconomicVariable

Source(s) of Expectations

Uq.1
RSLSt-l IPt.,

Money Market Services Survey Money Market Sewices Survey Money Market Services Survey Money Market Services Survey

cPIt.,

22

Table 2. Are “Forward-Looking” Interest Rates Efficient and Unbiased Estimators of the Future Federal Funds Rate? (based on 179 monthly observations from 1980 to 1994)

significance Levels Market Interest Rate TFF~-l
a=O ps = o 5= ] ps = 0,6 = 1

R2 .41
.78

.85
.07

<.01
<.() ]

.36
<.01

<.0]
<.01

TBq-1
cDq.1

.36 .74
.58

<.01 <,()]
<.()]

.84 .31
<.01

<,01 <.01
<.01

.41 .43
.45

ED%.]
FFR1-l

23

Table 3. Are MMS ForecastsEfficientand Unbiased Estimatorsof Future EconomicActivity? (based on 179 monthly observationsfrom 1980to 1994) (13)

SignificanceLevels Economic Variable (Zt)
a=O ps = o 8= 1 ps = 0,5 = 1

R2
.14 .26 .18 .00

u~.1
‘/oARSLS~-l
‘/oAlPt-l

.43
.90 .24 .82

.05
<.() 1 .13 .61

.01
.01 .06 .89

.05 <.01 .13 .62

‘/oACP1[-l

24

Table 4. Are VAR Innovations Correlated with Innovations Derived Using Market Expectations? (based on 179 monthly observations from 1980 to 1994)

i) Federal Funds Rate

Comelationwith: Source of Innovation
1) Standard VAR a

Variance
.411

(1)
1.00

(2)

(3)

2) ModifiedVAR b 3) ModifiedVAR plus TFF~-l c

.503 .155

.95 .56

1.00 .55 1.00

a Derived using 12 lags of ~URtCP1tPCOMt FF~ NB~ TOT% Mlt).
b Derived as above, excluding u~.l and Cprt-]” c Derived as above, including expectations measure.

ii) UnemploymentRate
Correlation with:

Source of Innovation 1) StandardVAR a 2) ModifiedVAR b 3) ModifiedVAR plus MMS Forecast c

Variance .024 .023 .013

(1) 1.00
.05

(2)

(3)

1.00

-.04

.76

1.00

‘ Derived for UK using 12 lags of {U~ CPIt PCOM1 FF~ NB~ TOT~ Mlt} . b Derived for U~-l using 12 lags of {U~-{ CP1t.l PCOM~ FF~ NB~ TOT~ Ml~}. c Derived as above, includingexpectationsmeasure. 25

Table 4. (cont.) Are VAR InnovationsCorrelatedwith InnovationsDerived Using Market Expectations? (based on 179 monthly observationsfrom 1980to 1994)
iii) Consumer Price Index

Correlationwith: Source of Innovation 1) Standard VAR a 2) ModifiedVAR b 3) ModifiedVAR plus MMS Forecastc Variance .033 .034 .016 (1) 1.00 .14 -.04 1.00 .68 1.00 (2) (3)

a Derived for CPIt using 12 lags of {U% CPIt PCOMt FF~ NB~ TOT~ Mlt}. b Derived for CpIt-l ~~ing 12 lags of {U~-1 cplt-~ PCOMt FF~ NB~ TOT% Mlt} . c Derived as above, including expectations measure.

26

Table 5. Decomposition of FFR Innovations (based on 179 monthly observations from 1980 to 1994)

FFR lit =

yl u:+

CPI y2ut +

Y3ut

PCOM

MP + ~t

(lo)

Parameter Estimates Source of Innovation
1) Standard VAR a Y=UR Y=RSLS Y=IP 2) Modified VAR b Y=UR Y=RSLS Y=IP

Y]

Y2

Y3

R2

-.51***

-.18 -.14 -.11

.91** .72**
.64**

.06
.02 .04

.00
.12*

-.84”’”
.01 . 10*

.02 .12 .12

1.07”” .80”” .84**

.10
.02 .04

3) Modified VAR plus Expectationsc Y=UR Y=RSLS Y=IP -.43*
.05 .00 -.03 -.03 -.10

.10
-.05 .02

.01
.00 .00

a Derived using 12 lags of Xt = {Yt CPIt PCOM1FF~ NB~ TOT% Mlt) . b See “b~r table notes in Figure 4. ~*~erived as above, including TFF~-l or MMS expectationsmeasure. Significant at the IVOlevel. q * Significant at the 5V0level. q Significant at the IOVO level.

27

Figure 1. The Federal Funds Rate and Fomard-Looking Interest Rates
22.5
20.0 i 17.5 15.0 12.5 10.0 7.5 5.0 2.5 1980 , 1982 1984 1986 I i I

a) FFR(t) and TFFR(t-1 )
q

1988

1990

1992

1994

25.0 22.5 20.0 17.5 15.0 12.5 10.0 7.5 5.0 2.5

b) FFR(t) and EDR(t-1) 1

!
1980
1

1

1982

I

1984

1986

1988

1990

22.5
20.0 17.5 15.0 12.5 10.0 7.5 5.0 -J 2.5

I

c) FFR(t) and TBR(t-1)
)

\
1 \ \ 1, 1980 ,

, 1982

1984

1986

1988

1990

Figure 1 (cent). The Federal Funds Rate and Fotward-LOOking Interest Rates
d)FFR(t) and CDR(t-1)
.

22.5 20.0 17.5 15.0 12.5 10.0 7.5 1 5.0 2.5

I

““-w
1980

f I 1988 ,,* , 1990

T

, 1982

T t 1984

, , 1986

1992

1994

22.5 20.0 17.5 15.0 12.5 10.0 7.5 5,0 2.5

I ~(
1
I , I ,

e) FFR(t) and FFR(t-1)

I

/

I

I

J
1980 I

r

1982

29

i

Figure2. Actual and MMS Forecasts of Economic Growth

.

11 A 10

a) UNR and Forecasted UNR
q

1

9 8 7
]p ~ /,
3 \

b i )< \ t

\ {-

f’~
!

6 5
1980

\ \
, , , ,

\’

i

,

1982

,

1984

z , 1986

1988

1990

1992

,

1994

6 4 2 0 “2 -4 -6
1980 8

b) RSLS and Forecasted RSLS

I

1982

1

1

1984

1

I 1 1986 ‘

1 1 1988

1 I 1990

# 1 1992

1 1994

3 2 1 .
0 . -1 .
i

c) [P and Forecasted 1P

“2 . -3

30

i

Figure 3. Actual and MMS Forecastsof CPI Inflation
1.50 1.25 1.00 0.75 0.50 0.25 0.00 -0.25 -0.50

31

Figure 4. Responses toa MonetayPolicy Shock

( VAR=
0.100 0.075 0.050 0.025 0.000 -0.025
I A/’w -L /L ~ / I / -O\ ----\ -Yr

EXP=–--

)

a) Responseof UR
——-~~—-\\ ~-

q

\\ ----------

\

\ \

.

-0.050 -0.075

\

I
0

, r I I 1T

5

v1, r 1, 10 15

\ , , 20 , , T 25 , 30 ‘ 35

0.1 -0.0 -0.1
-0.2 -0.3 1 -0.4 -0.5 -0.6
Yr”\—~— 1 \ \\ \ \ -\

b) Responseof CPI
-— —~

\

------\

!
0

,?

v

1 , 1
5

w

1

1 8 1 , t 1 v 1 8 m 1 1 1 , u t v , 1 , , 1 1 I 1 10 15 20 25 30 35
c) Responseof PCOM

0.050 0.025 -0.000 -0.025 “0.050 -0.075 1 4.100 1I I 0 ~~ \ \ \ L—
1

& — >“4 ““’ “;\ \ \ \ / \_/ \ / /

—————

~.

\ ---

--#@ -# /“’-

-a -”---~——

--

/\ —\ \/

/ /

/

, 1

1

1 , * 1 v , ,
5

10

, 1 , , 1 mv , 1 1 9 1 m8 1 , , 9 , 8 1 , 15 ‘ 20 ‘ 25 30 35

32

Figure 4 (cent). Responsesto a Monetary Policy Shock
0.80 0.64 --i 0.48 0.32 0.16 \ 0.00 -0.16 -0.32 \/~-—1

d) Response f FFR o

/\\ /’/ 1A
*
I

9

\\’

——~.

1,,,,,,,,,,,,,,
-H

I

\

3\Jfl’\~ \
10

Y/>_-~
\ \/ —\~———~

o

5

15

, , ,
20

, 1 , I 25

I 1 1 I , 1 1 , 30 35

0.32 0.16 0.00 -0.16 -0.32 .~ -0.48 -0.64 -0.80 -0.96 -1.12 I
1 I

e) Response f NBR o /~\ / / \/ \/ \/ 0) / ----------\ \ \/’ ------------------/ /—-—\ \———-

/ 1~” \ / /

-, \ \
\ \/ / /

——

—1—~

/

—-

0

1

,

1

I

,

5

1

I 1 1 1 s , 1 1 I 1 1 1 I 1 I 8 1 1 a 1 m1 4 s I r 1 I 10 15 20 25 30 35 f) Response f TOTR o

0.1 -0.0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 “0.7 -008

\\ 1 ~“
I
L0 \ \ --\

_

A

-----

_-

---

----------

\/

L

~–

i

\—

\

—1

~——
\4~—

~—-

0

I

1

I

1

I

1

5

1

u 8

r

10

1

a

,

I I 1 1 I I 1 1 1 s 1 1 I 8 1 I 1 I 1 1 0 n v 15 20 25 30 35

Figure 4 (cent). Responses to a Moneta~ Policy Shock
-0.0 g) Response Ml of
J

-0.1
-0.2 \ -0.3 -0.4 -0.5 -0.6 , , \ \ L \F \ \ Lb \ o \ . --~- =---------------------

——q

5

r

,

,

10

,

, ,

L“r

15

,

——— — ———— , I I 1 T I , , 1 1 r 1 , 20 25 30

1

35

34

International Finance Discussion Papers IFDP e 96 537 536
Using Measures of Expectations to 1denti& the Effects of a Monetary Policy Shock Regime Switching in the Dynamic Relationship between the Federal Funds Rate and Innovations in Nonborrowed Reserves

uthor[S)

AlIan D. Brunner Chan Huh

535 534 533

The Risks and Implicationsof External Financial Shocks: Lessons from Mexico Currency Crashes in Emerging Markets: An
Empirical Treatment Regional Patterns in the Law of One Price: The Roles of Geography vs. Currencies J995

Edwin M. Truman Jeffrey A. Frankel Andrew K. Rose Charles Engel John H. Rogers

532 531 530 529 528 527 526

Aggregate Productivity and the Productivity of Aggregates A Century of Trade Elasticities for Canada, Japan, and the United States Modelling Inflation in Australia Hyperinflation and Stabilisation: Cagan Revisited

Susanto Basu John G. Femald Jaime Marquez Gordon de Brouwer Neil R. Ericsson Marcus Miller Lei Zhang Guy V.G. Stevens Peter Hooper Elizabeth Vrankovich Dale W. Henderson Ning S. Zhu

On the Inverse of the Covariance Matrix in Portfolio Analysis InternationalComparisonsof the Levels of Unit Labor Costs in Manufacturing Uncertainty,InstrumentChoice, and the Uniqueness of Nash Equilibrium: Macroeconomicand MacroeconomicExamples

Please address requests for copies to InternationalFinance DiscussionPapers, Division of InternationalFinance, Stop 24, Board of Governors of the Federal Reserve System, Washington,DC 20551. 35

International Finance Discussion Papers IFDP
ti

J995

525 524 523 522 521 520 519 518 517

Targeting Inflation in the 1990s: Recent Challenges Economic Developmentand Intergenerational Economic Mobility Human Capital Accumulation,Fertility and Growth: A Re-Analysis Excess Returns and Risk at the Long End of the Treasury Market: An EGARCH-M Approach The Money TransmissionMechanism in Mexico When is Moneta~~Policy Effective? Central Bank Independence,Inflation and Growth in Transition Economies Alternative Approachesto Real Exchange Rates and Real Interest Rates: Three Up and Three Down Product market competitionand the impact of price uncertaintyon investment: some evidence from U.S. manufacturingindustries Block Distributed Methods for Solving Multi-countryEconometricModels Supply-sidesources of inflation: evidence from OECD countries Capital Flight horn the Countries in Transition: Some Theory and EmpiricaIEvidence Bank Lending and Economic Activity in Japan: Did “FinancialFactors”Contributeto the Recent Downturn? Evidence on Nominal Wage Rigidity From a Panel of U.S. ManufacturingIndustries

Richard T. Freeman Jonathan L. Willis Murat F. Iyigun Murat F. Iyigun Allan D. Brunner David P. Simon Martina Copelman Alejandro M. Werner John Ammer Al[an D. Brunner Prakash Loungani Nathan Sheets Hali J. Edison William R. Melick Vivek Ghosal Prakash Loungani Jon Faust Ralph Tryon Prakash Loungani Phillip Swagel NathanSheets AlIanD. Brunner Steven B. Kamin Vivek Ghosal Prakash Loungani

516 515 514 5!3

512

36