As the figure s top panel shows, U.S. 10-year

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1 MonetaryTrends October Bond Market Mania As the figure s top panel shows, U.S. 1-year Treasury note (bond) yields have been very volatile since May. Yields fell more than 7 basis points from May 1 to their nadir June 1, before soaring more than 1 basis points after the FOMC s June statement. Many financial analysts blame the Fed s announcements for this disorder. For example, the FOMC announcement of May was widely interpreted to herald sustained lower short-term rates and/or the purchase of long-term bonds by the Fed to effect easier monetary policy:...the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level. In contrast, the financial press interpreted a less-than-expected federal funds target cut and an almost identical press release following the June FOMC meeting to mean that the Fed was reversing course by playing down the possibility of a fall in inflation. How might the Fed s announcements have influenced bond yields? There are two major components to current U.S. Treasury yields: expected inflation and a real component. Higher expected inflation raises interest rates because lenders demand compensation for the expected loss of purchasing power. But the real rate depends on the expected productivity of physical capital. A robust economy and high productivity encourage businesses to borrow to finance future production, bidding up interest rates. Did the Fed s statements influence bond yields by changing expectations of inflation, real activity, or both? Although we cannot directly observe the components of long-term interest rates, we can estimate real interest rates from the yields on Treasury inflation-indexed securities (TIIS). The principal and coupon payments on TIIS are indexed to the CPI to protect investors from inflation. Thus, the usual interpretation is that projected inflation is reflected in ordinary bond yields but has no effect on TIIS yields, and the market s forecast of inflation is approximately the difference between these yields. Complicating this calculation, however, is the fact that deflation does not reduce TIIS principal payments; a higher probability of deflation will reduce TIIS yields. The probability of cumulative deflation over a ten-year period must be low, so TIIS yields probably still mostly reflect real returns. The first two panels of the figure show that from May through July, U.S. real interest rates (1-year TIIS yields) moved almost as much as 1-year nominal yields. Unless expectations of cumulative deflation changed dramatically, forecasts of real growth drove most of the fluctuations in Treasury yields. This conclusion challenges the interpretation that Fed statements caused the bond market volatility by changing inflation expectations. The figure also shows that nominal and real yields in the United Kingdom followed much the same pattern as that in the United States, which bolsters the interpretation that changes in forecasts of real returns rather than greater expectations of deflation drove the fluctuations in U.S. bond yields. Trade and financial markets link economic activity and real interest rates in the U.S. and the U.K. The bottom panel shows expected inflation as the difference between nominal yields and inflation-indexed yields for the U.S. and the U.K. As the first two panels imply, expected U.S. inflation fell much less than the U.S. real rate, slipping only about basis points from April to mid-june, before rising again. Expected inflation in the U.K. showed no trend over this period, however, probably due to the Bank of England s explicit. percent inflation target. Christopher J. Neely Nominal Yields... U.S. 1-Year Bond Yield. Mar Apr May Jun Jul Aug Inflation-Indexed Yields. U.S. 1-Year Inflation-Indexed Yield. 1. U.K. 1-Year Inflation-Indexed Yield 1. Mar Apr May Jun Jul Aug Expected Inflation... U.K. 1-Year Bond Yield U.K. Inflation Expectations U.S. Inflation Expectations 1. Mar Apr May Jun Jul Aug SOURCE: Data are from Bloomberg and the Board of Governors of the Federal Reserve System. Views expressed do not necessarily reflect official positions of the Federal Reserve System. Available on the web at research.stlouisfed.org

2 Contents Page Monetary and Financial Indicators at a Glance Monetary Aggregates and Their Components Monetary Aggregates: Monthly Growth 7 Reserves Markets and Short-Term Credit Flows Measures of Expected Inflation 9 Interest Rates 1 Policy-Based Inflation Indicators 11 Implied Forward Rates, Futures Contracts, and Inflation-Indexed Securities 1 Velocity, Gross Domestic Product, and M 1 Bank Credit 1 Stock Market Index and Foreign Inflation and Interest Rates 1 Reference Tables 1 Definitions, Notes, and Sources Conventions used in this publication: 1. Unless otherwise indicated, data are monthly.. Shaded areas indicate recessions, as determined by the National Bureau of Economic Research.. change at an annual rate is the simple, not compounded, monthly percent change multiplied by 1. For example, using consecutive months, the percent change at an annual rate in x between month t 1 and the current month t is: [(x t /x t 1 ) 1] 1. Note that this differs from National Economic Trends. In that publication, monthly percent changes are compounded and expressed as annual growth rates.. 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 1 and the current month t is: [(x t /x t 1 ) 1] 1. We welcome your comments addressed to: Editor, Monetary Trends P.O. Box St. Louis, MO 1- or to: stlsfred@stls.frb.org Monetary Trends is published monthly by the of the. Single-copy subscriptions are available free of charge by writing to the Public Affairs Department,, P.O. Box, St. Louis, MO 1- or by calling (1) -9. Subscription forms may also be completed online at research.stlouisfed.org/order/pubform.php. For more information on data in this publication, please visit research.stlouisfed.org/fred or call (1) -9. The entire publication is also available on the Internet at research.stlouisfed.org/publications/mt.

3 updated through 1/1/ Monetary Trends M and MZM Billions of dollars MZM M Reserve Market Rates Discount Rate Effective Federal Funds Rate Intended Federal Funds Rate Primary Credit Rate Adjusted Monetary Base change at an annual rate Treasury Yield Curve. Week Ending:. 1/11/ 9/1/. 1/1/ m 1y y y y 7y 1y Total Bank Credit change at an annual rate 1 Interest Rates Jul Aug Sep Federal Funds Rate Prime Rate... Primary Credit Rate... Conventional Mortgage Rate Treasury Yields Yields:... -Month Constant Maturity Month Constant Maturity Year Constant Maturity Year Constant Maturity Year Constant Maturity Year Constant Maturity

4 Monetary Trends updated through 9/1/ MZM and M1 1 1 MZM M M M Monetary Services Index - M

5 updated through 9/1/ Monetary Trends Adjusted Monetary Base Domestic Nonfinancial Debt 1 Currency Held by the Nonbank Public 1 1 Total 1 - Federal Time Deposits Checkable and Savings Deposits Large Denomination Savings - - Small Denomination -1-1 Checkable Money Market Mutual Fund Shares Repurchase Agreements and Eurodollars Billions of dollars Billions of dollars Institutional Funds Repos (left) 1 Retail Funds Eurodollars (right)

6 Monetary Trends updated through 9/1/ M1 change at an annual rate MZM change at an annual rate M change at an annual rate M change at an annual rate

7 updated through 1// Monetary Trends Adjusted and Required Reserves Billions of dollars 1 1 Adjusted Required Total Borrowings, nsa Excess Reserves plus RCB Contracts Billions of dollars Billions of dollars Nonfinancial Commercial Paper Consumer Credit

8 Monetary Trends updated through 1/1/ Inflation and Inflation Expectations 1 Federal Reserve Bank of Philadelphia Humphrey-Hawkins CPI Inflation Range University of Michigan CPI Inflation The shaded region shows the Humphrey-Hawkins CPI inflation range. Beginning in January, the Humphrey-Hawkins inflation range was reported using the PCE price index and therefore is not shown on this graph. See notes on page 19. Treasury Security Yield Spreads Yield to maturity 1-Year less -Month T-Bill 1-Year less -Year T-Bill -Year less -Month T-Bill Real Interest Rates, Real rate = Nominal rate less CPI inflation 1-Year Treasury Yield Federal Funds Rate

9 updated through 1// Monetary Trends Short-Term Interest Rates 1 9-Day Commercial Paper 1 1 Prime Rate -Month Treasury Yield Long-Term Interest Rates 1 Conventional Mortgage Corporate Aaa 1-Year Treasury Yield Long-Term Interest Rates 9 7 Corporate Baa Short-Term Interest Rates -Month Treasury Yield 1-Year Treasury Yield Day Commercial Paper FOMC Intended Federal Funds Rate, Discount Rate, and Primary Credit Rate 1 1 Intended Federal Funds Rate Discount Rate Primary Credit Rate

10 Monetary Trends updated through 9// Federal Funds Rate and Inflation Targets 1 % % % 1% % Target Inflation Rates 9 Actual Calculated federal funds rate is based on Taylor s rule. See notes on page 19. Components of Taylor s Rule Actual and Potential Real GDP PCE Inflation and Projections Billions of chain-weighted 199 dollars Actual Potential The shaded region shows the range of projections published in the Monetary Policy Report to the Congress. Monetary Base Growth* and Inflation Targets 1 Actual 9 Target Inflation Rates % 1% % % % *Modified for the effects of sweeps programs on reserve demand. Calculated base growth is based on McCallum s rule. Actual base growth is percent change from year ago. See notes on page 19. Monetary Base Velocity Growth 1-Year Moving Average Components of McCallum s Rule Real Output Growth 1-Year Moving Average - -Year Moving Average 1-Year Moving Average

11 updated through 1/1/ Monetary Trends Implied One-Year Forward Rates Week Ending: 1/11/ 9/1/ 1/1/ y y y 7y 1y Rates on -Month Eurodollar Futures, daily data Oct Dec Nov /11 /1 / 9/1 9/ 9/1 9/ 9/9 1/ 1/1 Rates on Selected Federal Funds Futures Contracts, daily data 1.1 Rates on Federal Funds Futures on Selected Dates Nov Oct Dec 1. /9/ 9// 7/1/.9.9 /11 /1 / 9/1 9/ 9/1 9/ 9/9 1/ 1/1 Oct Nov Dec Jan Feb Mar Contract Month Inflation-Indexed Treasury Bonds Inflation-Indexed Treasury Yield Spreads, weekly data, weekly data. -Year. -Year. 1-Year 1-Year Inflation-Indexed -Year Government Bonds, weekly data Inflation-Indexed 1-Year Government Bonds, weekly data U.S. Canada U.S. U.K. U.K /1/1999 1/1/ 1/1/1 1/1/ 1/1/ 1/1/ 1/1/1999 1/1/ 1/1/1 1/1/ 1/1/ 1/1/ 11

12 Monetary Trends updated through 9// Velocity Nominal GDP/MZM, Nominal GDP/M (Ratio Scale)..7 MZM.. M Interest Rates 1 -Month T-Bill M Own MZM Own MZM Velocity and Interest Rate Spread Ratio Scale M Velocity and Interest Rate Spread Ratio Scale Velocity = Nominal GDP / MZM Q1 to 199Q 199Q1 to present Interest Rate Spread = -Month T-Bill less MZM Own Rate Velocity = Nominal GDP / M Q1 to 199Q 199Q1 to present Interest Rate Spread = -Month T-Bill less M Own Rate 1

13 updated through 9// Monetary Trends Gross Domestic Product Dashed lines indicate 1-year moving averages. Real Gross Domestic Product Dashed lines indicate 1-year moving averages. Gross Domestic Product Price Index Dashed lines indicate 1-year moving averages. M Dashed lines indicate 1-year moving averages. 1

14 Monetary Trends updated through 1/1/ Bank Credit Investment Securities in Bank Credit at Commercial Banks Total Loans and Leases in Bank Credit at Commercial Banks Commercial and Industrial Loans at Commercial Banks

15 updated through 1/1/ Monetary Trends Standard & Poor s Price/Earnings Ratio (right) 1 Composite Index (left) Recent Inflation and Long-Term Interest Rates United States Canada France Germany Italy Japan United Kingdom Consumer Price Inflation Rates Long-Term Government Bond Rates Q Q1 Q Q Jun Jul Aug Sep Inflation and Long-Term Interest Rate Differentials Canada Canada U.K. U.K. - Germany Germany - Japan Inflation differential = Foreign inflation less U.S. inflation Long-term rate differential = Foreign rate less U.S. rate Japan

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17 updated through 1// Monetary Trends Federal Discount Primary Prime -mo Treasury Yields Corporate S & L Conventional Funds Rate Credit Rate Rate CDs -mo -yr 1-yr Aaa Bonds Aaa Bonds Mortgage Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep *All values are given as a percent at an annual rate. 17

18 Monetary Trends updated through 9/1/ M1 MZM M M change at an annual rate Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

19 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: M minus small-denomination time deposits, plus institutional money market mutual funds. The label MZM was coined by William Poole (1991) for this aggregate, proposed earlier by Motley (19). M: M1 plus savings deposits (including money market deposit accounts) and small-denomination (less than $1,) time deposits issued by financial institutions; and shares in retail money market mutual funds (funds with initial investments of less than $,), net of retirement accounts. M: M plus large-denomination ($1, 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 $, 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 (199a, 199b, 1). Adjusted Reserves: The sum of vault cash and Federal Reserve Bank deposits held by depository institutions and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. This series, a spliced chain index, is numerically larger than the Board of Governors measure, which excludes vault cash not used to satisfy statutory reserve requirements and Federal Reserve Bank deposits used to satisfy required clearing balance contracts; see Anderson and Rasche (199a, 1). 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 M; additional data are available at research.stlouisfed.org/msi/index.html. Note: M1, M, M, Bank Credit, and Domestic Nonfinancial Debt are constructed and published by the Board of Governors of the Federal Reserve System. For details, see Federal Reserve Bulletin, tables 1.1 and 1.. MZM, Adjusted Monetary Base, Adjusted Reserves, and Monetary Services Index are constructed and published by the of the Federal Reserve Bank of St. Louis. Notes Page : MZM, or Money, Zero Maturity, includes the zero maturity, or immediately available, components of M. MZM equals M minus smalldenomination time deposits, plus institutional money market mutual funds (that is, the money market mutual funds included in M but excluded from M). Readers are cautioned that since early 199 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 (1) 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.1 Statistical Release. The Treasury Yield Curve shows constant maturity yields calculated by the U.S. Treasury Department for securities with months and 1,,,, 7, and 1 years to maturity. Daily data and descriptions are available at research.stlouisfed.org/ fred/data/wkly.html. See also Federal Reserve Bulletin, table 1.. The -year constant maturity series was discontinued by the Treasury Department as of February 1,. Page : Checkable Deposits is the sum of demand and other checkable deposits. Savings Deposits is the sum of money market deposit accounts and passbook and statement savings. Time Deposits have a minimum initial maturity of 7 days. Large Time Deposits are deposits of $1, or more. Retail and Institutional Money Market Mutual Funds are as included in M and the non-m component of M, respectively. Page 7: Excess Reserves plus RCB (Required Clearing Balance) Contracts equals the amount of deposits at Federal Reserve Banks held by depository institutions but not applied to satisfy statutory reserve requirements. (This measure excludes the vault cash held by depository institutions that is not applied to satisfy statutory reserve requirements.) Consumer Credit includes most short- and intermediate-term credit extended to individuals. See Federal Reserve Bulletin, table 1.. Page : Inflation Expectations measures include the quarterly Federal Reserve Bank of Philadelphia Survey of Professional Forecasters, the monthly University of Michigan Survey Research Center s Surveys of Consumers, and the annual Federal Open Market Committee (FOMC) range as reported to the Congress in the February Humphrey-Hawkins Act testimony each year. Beginning February, the FOMC began using the personal consumption expenditures (PCE) price index to report its inflation range and therefore is not shown on this graph. CPI Inflation is the percentage change from a year ago in the consumer price index for all urban consumers. Real Interest Rates are ex post measures, equal to nominal rates minus CPI inflation. Page 9: FOMC Intended Federal Funds Rate is the level (or midpoint of the range, if applicable) of the federal funds rate that the staff of the FOMC expected to be consistent with the desired degree of pressure on bank reserve positions. In recent years, the FOMC has set an explicit target for the federal funds rate. Page 1: 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 (199) equation f * t =. + π t 1 + (π t 1 π * )/ + 1 (y t 1 y P t 1 )/ to five alternative target inflation rates, π * =, 1,,, percent, where f * t is the implied federal funds rate, π t 1 is the previous period s inflation rate (PCE) measured on a year-over-year basis, y t 1 is the log of the previous period s level of real gross domestic product (GDP), and y P t 1 is the log of an estimate of the previous period s level of potential output. Potential Real GDP is as estimated by the Congressional Budget Office. Monetary Base Growth and Inflation Targets shows the quarterly growth of the adjusted monetary base (modified to include an estimate of the effect of sweep programs) implied by applying McCallum s (19, 199) equation MB * t = π * + (1-year moving average growth of real GDP) (-year moving average of base velocity growth) to five alternative target inflation rates, π * * =, 1,,, percent, where MB t is the implied growth rate of the adjusted monetary base. The 1-year moving average growth of real GDP for a quarter t is calculated as the average quarterly growth during the previous quarters, at an annual rate, by the formula ((y t y t )/) 1, where y t is the log of real GDP. The fouryear moving average of base velocity growth is calculated similarly. To adjust the monetary base for the effect of retail-deposit sweep programs, we add to the monetary base an amount equal to 1 percent of the total amount swept, 19

20 Monetary Trends as estimated by the Federal Reserve Board staff. These estimates are imprecise, at best. Sweep program data are available at research.stlouisfed.org/aggreg/swdata.html. Page 11: Implied One-Year Forward Rates are calculated by this Bank from Treasury constant maturity yields. Yields to maturity, R(m), for securities with m = 1,..., 1 years to maturity are obtained by linear interpolation between reported yields. These yields are smoothed by fitting the regression suggested by Nelson and Siegel (197), R(m) = a + (a 1 + a )(1 e m/ )/(m/) a e m/, and forward rates are calculated from these smoothed yields using equation (a) in table 1.1 of Shiller (199), 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 (199). For a discussion of the use of forward rates as indicators of inflation expectations, see Sharpe (1997). Rates on -Month Eurodollar Futures and Rates on Selected Federal Funds Futures Contracts trace through time the yield on three specific contracts. Rates on Federal Funds Futures on Selected Dates displays a single day s snapshot of yields for contracts expiring in the months shown on the horizontal axis. Inflation-Indexed Treasury Bonds are yields on the most recently issued inflation-indexed securities of 1- and -year original maturities. Inflation-Indexed Treasury Yield Spreads equal, for 1- and -year maturities, the difference between the yields on the most recently issued inflation-indexed securities and the unadjusted bond yields of similar maturity. Inflation-Indexed -Year Government Bonds shows the yield of an inflation-indexed bond that is scheduled to mature in approximately (but not greater than) years. The current bond for Canada has a maturity date of 1/1/1, the current U.K. bond has a maturity date of 7//, and the current U.S. bond has a maturity date of /1/. Inflation-Indexed 1-Year Government Bonds shows the yield of an inflationindexed bond that is scheduled to mature in approximately (but not greater than) 1 years. The current U.K. bond has a maturity date of /1/1 and the current U.S. bond has a maturity date of 7/1/1. Page 1: Velocity (for MZM and M) equals the ratio of GDP, measured in current dollars, to the level of the monetary aggregate. MZM and M Own Rates are weighted averages of the rates received by households and firms on the assets included in the aggregates. Prior to 19, the -month T-bill rates are secondary market yields. From 19 forward, rates are -month constant maturity yields. Page 1: Real Gross Domestic Product is GDP as measured in chained 199 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 199 dollars. Page 1: Investment Securities are all securities held by commercial banks in both investment and trading accounts. Page 17: Treasury Yields are Treasury constant maturities as reported in the Board of Governors of the Federal Reserve System s H.1 release. Sources Bank of Canada Canadian inflation-linked bond yields. Bank of England U.K. inflation-linked bond yields. Board of Governors of the Federal Reserve System Monetary aggregates and components: H. release. Bank credit and components: H. release. Consumer credit: G.19 release. Required reserves, excess reserves, clearing balance contracts, and discount window borrowing: H..1 and H. releases. Interest rates: H.1 release. Nonfinancial commercial paper: Board of Governors website. Nonfinancial debt: Z.1 release. M own rate. 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. 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. inflation-indexed security yields. References Anderson, Richard G. and Robert H. Rasche (199a). A Revised Measure of the St. Louis Adjusted Monetary Base, Review, March/April, 7(), pp. -1. and (199b). Measuring the Adjusted Monetary Base in an Era of Financial Change, Review, November/ December, 7(), pp. -7. and (1). Retail Sweep Programs and Bank Reserves, , Review, January/February, pp. 1-7., Barry E. Jones and Travis D. Nesmith (1997). Special Report: The Monetary Services Indexes Project of the Federal Reserve Bank of St. Louis, Review, January/February, 79(1), pp. 1-. McCallum, Bennett T. (19). Robustness Properties of a Monetary Policy Rule, Carnegie-Rochester Conference Series on Public Policy, vol. 9, pp (199). Specification and Analysis of a Monetary Policy Rule for Japan, Bank of Japan Monetary and Economic Studies, November, pp. 1-. Motley, Brian (19). Should M Be Redefined? Federal Reserve Bank of San Francisco Economic Review, Winter, pp. -1. Nelson, Charles R. and Andrew F. Siegel (197). Parsimonious Modeling of Yield Curves, Journal of Business, October, pp 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, Government Printing Office, Serial No. 1-. Sharpe, William F. (1997). Macro-Investment Analysis, on-line textbook available at Shiller, Robert (199). The Term Structure of Interest Rates, Handbook of Monetary Economics, vol. 1, B. Friedman and F. Hahn, eds., pp Taylor, John B. (199). Discretion versus Policy Rules in Practice, Carnegie- Rochester Conference Series on Public Policy, vol. 9, pp Note: Articles from this Bank s Review are available on the Internet at research.stlouisfed.org/publications/review/.