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Monetary Trends

Monetary Aggregates and Their Components

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 to five alternative target inflation rates, π= 0, 1, 2, 3, 4 percent, where ft* is the implied federal funds rate, πt–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.
ft* = 2.5 + πt–1 + (πt–1 – π)/2 + 100 × (yt–1 – yt–1P)/2


Actual and Potential Real GDP

Billions of Chain-Weighted 2009 Dollars

Potential Real GDP is estimated by the Congressional Budget Office (CBO).

PCE Inflation

Percent change from year ago



Monetary Base Growth and Inflation Targets shows the quarterly growth of the adjusted monetary base implied by applying McCallum’s equation 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, Δyt* is the 10-year moving average growth in real GDP, Δνat is the average base velocity growth (calculated recursively), Δxt–1 is the lag growth rate of nominal GDP, and λ = 0.5.
Δbt = Δxt* - Δvat + λ (Δxt* - Δxt-1), Δxt* = π* + Δyt*


Monetary Base Velocity Growth

Percent

Real Output Growth

Percent



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