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Page 1: US Treasury: FiguresFriedman

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FIGURES

A Half-Century of Changes in Monetary Policy 

John B. Taylor

Under Secretary of the Treasury for International Affairs

Conference in Honor of Milton FriedmanUniversity of Chicago

November 8, 2002

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U.S. Inflation FIGURE 1

-2

0

2

4

6

8

10

12

14

      1      9      5      1

      1      9      5      6

      1      9      6      1

      1      9      6      6

      1      9      7      1

      1      9      7      6

      1      9      8      1

      1      9      8      6

      1      9      9      1

      1      9      9      6

      2      0      0      1

       P     e     r

     c     e     n      t

Quarterly

Inflation

Smoothed Inflation

(four-quarter inflation)

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U.K. Inflation FIGURE 2

-5

0

5

10

15

20

2530

35

40

      1

      9      6      0

      1

      9      6      5

      1

      9      7      0

      1

      9      7      5

      1

      9      8      0

      1

      9      8      5

      1

      9      9      0

      1

      9      9      5

      2

      0      0      0

       P     e

     r     c     e     n      t

Quarterly

Inflation

Smoothed Inflation

(four-quarter inflation)

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Australia Inflation FIGURE 3

-5

0

5

10

15

20

25

30

      1

      9      6      0

      1

      9      6      5

      1

      9      7      0

      1

      9      7      5

      1

      9      8      0

      1

      9      8      5

      1

      9      9      0

      1

      9      9      5

      2

      0      0      0

       P     e

     r     c     e     n      t

Quarterly

Inflation

Smoothed Inflation

(four-quarter inflation)

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Canada Inflation FIGURE 4

-5

0

5

10

15

20

      1      9      6      1

      1      9      6      6

      1      9      7      1

      1      9      7      6

      1      9      8      1

      1      9      8      6

      1      9      9      1

      1      9      9      6

      2      0      0      1

       P     e     r

     c     e     n      t

Quarterly

Inflation

Smoothed Inflation

(four-quarter inflation)

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Median Inflation 5-Year Periods by Region 

FIGURE 5

0

2

4

6

8

10

12

14

16

1962-1966

1967-1971

1972-1976

1977-1981

1982-1986

1987-1991

1992-1996

1997-2001

   M  e   d   i  a  n   I  n   f   l  a   t   i  o  n   R  a   t  e   (   %   p  e  r  a  n  n  u  m   )

United

StatesAfrica

Asia

Middle East

Western

EuropeWesternHemisphere

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0%

100%

200%

300%

400%

500%

0% 100% 200% 300% 400% 500%Money Growth (% per annum)

   I  n   f   l  a   t   i  o  n   (   %   p  e  r  a  n  n  u  m

   )

Money Growth and Inflation 1971-2001

Argentina

Peru

Bolivia

FIGURE 6A

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Money Growth and Inflation 1971-2001 (close-up)

0%

50%

100%

150%

0% 50% 100% 150%

Money Growth (% per annum)

   I  n   f   l

  a   t   i  o  n   (   %   p

  e  r  a  n  n  u  m

   )Bolivia

UruguayTurkey

Israel Chile

Mexico

Sierra Leone

Venezuela

United States

FIGURE 6B

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0

1

2

3

4

5

0 1 2 3 4 5

Inflation Rate

   I  n   t  e  r  e  s   t   R  a   t  e

Monetary Policy Responses 

Older Monetary Policy

Newer Monetary Policy

Real interest rate

equals two percent

FIGURE 7

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U.S. Inflation FIGURE 8

-2

0

2

4

6

8

10

12

14

      1      9      5      1

      1      9      5      6

      1      9      6      1

      1      9      6      6

      1      9      7      1

      1      9      7      6

      1      9      8      1

      1      9      8      6

      1      9      9      1

      1      9      9      6

      2      0      0      1

       P     e     r     c     e     n      t

Quarterly

Inflation

Smoothed Inflation

(four-quarter inflation)

Q1 1968: Fed

Funds rate

was 4.8%

Q2 1989: FedFunds rate

was 9.7%

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U.K. Inflation FIGURE 9

-5

0

5

1015

20

2530

35

40

      1

      9      6      0

      1

      9      6      5

      1

      9      7      0

      1

      9      7      5

      1

      9      8      0

      1

      9      8      5

      1

      9      9      0

      1

      9      9      5

      2

      0      0      0

       P     e

     r     c     e     n      t

1971: Overnightinterest rate

was 6%

Quarterly

Inflation

Smoothed Inflation

(four-quarter inflation)

1990: Overnight

interest rate

was 15%

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Australia Inflation FIGURE 10

-5

0

5

10

15

20

25

30

      1

      9      6      0

      1

      9      6      5

      1

      9      7      0

      1

      9      7      5

      1

      9      8      0

      1

      9      8      5

      1

      9      9      0

      1

      9      9      5

      2

      0      0      0

       P     e     r     c     e     n      t

1969: Overnight

interest rate

was 4.5%

1990: Overnight

interest rate

was 17%

Quarterly

Inflation

Smoothed Inflation

(four-quarter inflation)

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Canada Inflation FIGURE 11

-5

0

5

10

15

20

      1      9

      6      1

      1      9

      6      6

      1      9

      7      1

      1      9

      7      6

      1      9

      8      1

      1      9

      8      6

      1      9

      9      1

      1      9

      9      6

      2      0

      0      1

       P     e     r     c

     e     n      t

1972: Overnight

interest ratewas 5%

1989: Overnight

interest rate

was 12%

Quarterly

Inflation

Smoothed Inflation

(four-quarter inflation)

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U.S. Real GDP FIGURE 12

0

1750

3500

5250

7000

8750

10500

      1      9      5      0

      1      9      5      5

      1      9      6      0

      1      9      6      5

      1      9      7      0

      1      9      7      5

      1      9      8      0

      1      9      8      5

      1      9      9      0

      1      9      9      5

      2      0      0      0

   B   i   l   l   i  o  n  s  o   f   1

   9   9   6   D  o   l   l  a  r  s

-6

-4

-2

0

2

4

6

Percent deviation

from trend (right axis)

Real GDP andTrend GDP (left axis)

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U.K. Real GDP FIGURE 13

0

40

80

120

160

200

240

      1      9      6      0

      1      9      6      5

      1      9      7      0

      1      9      7      5

      1      9      8      0

      1      9      8      5

      1      9      9      0

      1      9      9      5

      2      0      0      0

   B   i   l   l   i  o  n

  s  o   f   1   9   9   5

   B  r   i   t   i  s   h   P  o

  u  n   d  s

-6%

-4%

-2%

0%

2%

4%

6%

Percent deviation

from trend (right axis)

Real GDP andTrend GDP (left axis)

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Australia Real GDP FIGURE 14

0

30

60

90

120

150

180

      1      9      6      0

      1      9      6      5

      1      9      7      0

      1      9      7      5

      1      9      8      0

      1      9      8      5

      1      9      9      0

      1      9      9      5

      2      0      0      0

   B   i   l   l   i  o  n  s  o   f   2   0   0

   0   A  u  s   t  r  a   l   i  a  n   $

-6%

-4%

-2%

0%

2%

4%

6%

Percent deviation

from trend (right axis)

Real GDP andTrend GDP (left axis)

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Canada Real GDP FIGURE 15

0

200

400

600

800

1,000

1,200

      1      9      6      1

      1      9      6      6

      1      9      7      1

      1      9      7      6

      1      9      8      1

      1      9      8      6

      1      9      9      1

      1      9      9      6

      2      0      0      1

   B   i   l   l   i  o  n  s  o

   f   1   9   9   5   C   $

-6%

-4%

-2%

0%

2%

4%

6%

Percent deviation

from trend (right axis)

Real GDP andTrend GDP (left axis)