Accessible Version
Accessible version
Equation description:
In this equation, i sub t is the prescribed value of the policy interest rate in a given period t; pi sub t minus pi star sub t is the deviation of the actual inflation rate pi from its target pi star in period t; and y sub t minus y star sub t , the “output gap,” is the deviation of actual real output y from potential output y star in period t. The parameters a and b are positive numbers that describe how strongly the policy rate should respond to deviations of inflation from its target and of output from its potential.
As we would expect, the Taylor rule tells policymakers that interest rates should be higher when inflation is above target, (pi sub t minus pi star sub t) is greater than 0 , or when output is above its potential, (y sub t minus y star sub t) is greater than 0.
Slide descriptions:
Slide 1: The Target Federal Funds Rate
| Meeting Date | Target Rate |
|---|---|
| February 1-2, 2000 | 5.75 |
| March 21, 2000 | 6 |
| May 16, 2000 | 6.5 |
| June 27-28, 2000 | 6.5 |
| August 22, 2000 | 6.5 |
| October 3, 2000 | 6.5 |
| November 15, 2000 | 6.5 |
| December 19, 2000 | 6.5 |
| January 30-31, 2001 | 5.5 |
| March 20, 2001 | 5 |
| May 15, 2001 | 4 |
| June 26-27, 2001 | 3.75 |
| August 21, 2001 | 3.5 |
| October 2, 2001 | 2.5 |
| November 6, 2001 | 2 |
| December 11, 2001 | 1.75 |
| January 29-30, 2002 | 1.75 |
| March 19, 2002 | 1.75 |
| May 7, 2002 | 1.75 |
| June 25-26, 2002 | 1.75 |
| August 13, 2002 | 1.75 |
| September 24, 2002 | 1.75 |
| November 6, 2002 | 1.25 |
| December 10, 2002 | 1.25 |
| January 28-29, 2003 | 1.25 |
| March 18, 2003 | 1.25 |
| May 6, 2003 | 1.25 |
| June 24-25, 2003 | 1 |
| August 12, 2003 | 1 |
| September 15-16, 2003 | 1 |
| October 28, 2003 | 1 |
| December 9, 2003 | 1 |
| January 27-28, 2004 | 1 |
| March 16, 2004 | 1 |
| May 4, 2004 | 1 |
| June 29-30, 2004 | 1.25 |
| August 10, 2004 | 1.5 |
| September 21, 2004 | 1.75 |
| November 10, 2004 | 2 |
| December 14, 2004 | 2.25 |
| February 1-2, 2005 | 2.5 |
| March 22, 2005 | 2.75 |
| May 3, 2005 | 3 |
| June 29-30, 2005 | 3.25 |
| August 9, 2005 | 3.5 |
| September 20, 2005 | 3.75 |
| November 1, 2005 | 4 |
| December 13, 2005 | 4.25 |
| January 30-31, 2006 | 4.5 |
| March 27-28, 2006 | 4.75 |
| May 10, 2006 | 5 |
| June 28-29, 2006 | 5.25 |
| August 8, 2006 | 5.25 |
| September 20, 2006 | 5.25 |
| October 24-25, 2006 | 5.25 |
| December 12, 2006 | 5.25 |
| January 30-31, 2007 | 5.25 |
| March 20-21, 2007 | 5.25 |
| May 9, 2007 | 5.25 |
| June 27-28, 2007 | 5.25 |
| August 7, 2007 | 5.25 |
| September 18, 2007 | 4.75 |
| October 30-31, 2007 | 4.5 |
| December 11, 2007 | 4.25 |
| January 29-30, 2008 | 3 |
| March 18, 2008 | 2.25 |
| April 29-30, 2008 | 2 |
| June 24-25, 2008 | 2 |
| August 5, 2008 | 2 |
| September 16, 2008 | 2 |
| October 28-29, 2008 | 1 |
| December 15-16, 2008 | 0.125 |
| January 27-28, 2009 | 0.125 |
| March 17-18, 2009 | 0.125 |
| April 28-29, 2009 | 0.125 |
| June 23-24, 2009 | 0.125 |
| August 11-12, 2009 | 0.125 |
| September 22-23, 2009 | 0.125 |
| November 3-4, 2009 | 0.125 |
| December 15-16, 2009 | 0.125 |
Source: Federal Reserve Board
Slide 2. Evaluating the Tightness or Ease of Monetary Policy
General form of the Taylor rule:
isub t equals 2 plus pi sub t plus a(pi sub t minus pi star sub t) plus b(y sub t minus y star sub t)
where
- isub t is the prescribed value of the policy interest rate in a given period t;
- pi sub t minus pi star sub t is the deviation of the actual inflation rate pi from its target pi star in period t;
- y sub t minus y star sub t , the "output gap," is the deviation of actual real output y from potential output y star in period t; and
- a and b are positive numbers.
Slide 3: The Target Federal Funds Rate and the Taylor (1993) Rule Prescriptions
| Meeting Date | Target Rate | Taylor Rule (output gap and headline CPI inflation as currently measured) |
|---|---|---|
| February 1-2, 2000 | 5.75 | N/A |
| March 21, 2000 | 6 | 7.59 |
| May 16, 2000 | 6.5 | N/A |
| June 27-28, 2000 | 6.5 | 7.84 |
| August 22, 2000 | 6.5 | N/A |
| October 3, 2000 | 6.5 | 7.74 |
| November 15, 2000 | 6.5 | N/A |
| December 19, 2000 | 6.5 | 7.39 |
| January 30-31, 2001 | 5.5 | N/A |
| March 20, 2001 | 5 | 6.9 |
| May 15, 2001 | 4 | N/A |
| June 26-27, 2001 | 3.75 | 6.55 |
| August 21, 2001 | 3.5 | N/A |
| October 2, 2001 | 2.5 | 4.99 |
| November 6, 2001 | 2 | N/A |
| December 11, 2001 | 1.75 | 3.4 |
| January 29-30, 2002 | 1.75 | N/A |
| March 19, 2002 | 1.75 | 2.3 |
| May 7, 2002 | 1.75 | N/A |
| June 25-26, 2002 | 1.75 | 2.4 |
| August 13, 2002 | 1.75 | N/A |
| September 24, 2002 | 1.75 | 2.62 |
| November 6, 2002 | 1.25 | N/A |
| December 10, 2002 | 1.25 | 3.51 |
| January 28-29, 2003 | 1.25 | N/A |
| March 18, 2003 | 1.25 | 4.33 |
| May 6, 2003 | 1.25 | N/A |
| June 24-25, 2003 | 1 | 2.86 |
| August 12, 2003 | 1 | N/A |
| September 15-16, 2003 | 1 | 3.64 |
| October 28, 2003 | 1 | N/A |
| December 9, 2003 | 1 | 3.46 |
| January 27-28, 2004 | 1 | N/A |
| March 16, 2004 | 1 | 3.23 |
| May 4, 2004 | 1 | N/A |
| June 29-30, 2004 | 1.25 | 4.65 |
| August 10, 2004 | 1.5 | N/A |
| September 21, 2004 | 1.75 | 4.62 |
| November 10, 2004 | 2 | N/A |
| December 14, 2004 | 2.25 | 5.86 |
| February 1-2, 2005 | 2.5 | N/A |
| March 22, 2005 | 2.75 | 5.52 |
| May 3, 2005 | 3 | N/A |
| June 29-30, 2005 | 3.25 | 5.26 |
| August 9, 2005 | 3.5 | N/A |
| September 20, 2005 | 3.75 | 6.59 |
| November 1, 2005 | 4 | N/A |
| December 13, 2005 | 4.25 | 6.75 |
| January 30-31, 2006 | 4.5 | N/A |
| March 27-28, 2006 | 4.75 | 7.13 |
| May 10, 2006 | 5 | N/A |
| June 28-29, 2006 | 5.25 | 7.28 |
| August 8, 2006 | 5.25 | N/A |
| September 20, 2006 | 5.25 | 6.32 |
| October 24-25, 2006 | 5.25 | N/A |
| December 12, 2006 | 5.25 | 4.41 |
| January 30-31, 2007 | 5.25 | N/A |
| March 20-21, 2007 | 5.25 | 4.98 |
| May 9, 2007 | 5.25 | N/A |
| June 27-28, 2007 | 5.25 | 5.48 |
| August 7, 2007 | 5.25 | N/A |
| September 18, 2007 | 4.75 | 5.04 |
| October 30-31, 2007 | 4.5 | N/A |
| December 11, 2007 | 4.25 | 7.56 |
| January 29-30, 2008 | 3 | N/A |
| March 18, 2008 | 2.25 | 7.36 |
| April 29-30, 2008 | 2 | N/A |
| June 24-25, 2008 | 2 | 7.27 |
| August 5, 2008 | 2 | N/A |
| September 16, 2008 | 2 | 8.08 |
| October 28-29, 2008 | 1 | N/A |
| December 15-16, 2008 | 0.125 | 1.46 |
| January 27-28, 2009 | 0.125 | N/A |
| March 17-18, 2009 | 0.125 | 0 |
| April 28-29, 2009 | 0.125 | N/A |
| June 23-24, 2009 | 0.125 | 0 |
| August 11-12, 2009 | 0.125 | N/A |
| September 22-23, 2009 | 0.125 | 0 |
| November 3-4, 2009 | 0.125 | N/A |
| December 15-16, 2009 | 0.125 | N/A |
N/A Not applicable Return to table
Source: Federal Reserve Board, Bureau of Labor Statistics, Bureau of Economic Analysis, and Federal Reserve staff calculations.
Slide 4: The Target Rate and the Taylor Rule Prescriptions Using Real-Time Inflation Forecasts
| Meeting Date | Target Rate | Taylor Rule (output gap and headline CPI inflation as currently measured) | Taylor Rule (output gap and forecast of PCE inflation as measured in real time) |
|---|---|---|---|
| February 1-2, 2000 | 5.75 | N/A | 5.22 |
| March 21, 2000 | 6 | 7.59 | 6.01 |
| May 16, 2000 | 6.5 | N/A | 5.89 |
| June 27-28, 2000 | 6.5 | 7.84 | 5.83 |
| August 22, 2000 | 6.5 | N/A | 5.03 |
| October 3, 2000 | 6.5 | 7.74 | 5.33 |
| November 15, 2000 | 6.5 | N/A | 5.07 |
| December 19, 2000 | 6.5 | 7.39 | 4.80 |
| January 30-31, 2001 | 5.5 | N/A | 3.85 |
| March 20, 2001 | 5 | 6.9 | 4.08 |
| May 15, 2001 | 4 | N/A | 3.63 |
| June 26-27, 2001 | 3.75 | 6.55 | 3.41 |
| August 21, 2001 | 3.5 | N/A | 3.08 |
| October 2, 2001 | 2.5 | 4.99 | 2.69 |
| November 6, 2001 | 2 | N/A | 2.65 |
| December 11, 2001 | 1.75 | 3.4 | 2.13 |
| January 29-30, 2002 | 1.75 | N/A | 2.17 |
| March 19, 2002 | 1.75 | 2.3 | 3.55 |
| May 7, 2002 | 1.75 | N/A | 3.75 |
| June 25-26, 2002 | 1.75 | 2.4 | 3.92 |
| August 13, 2002 | 1.75 | N/A | 3.08 |
| September 24, 2002 | 1.75 | 2.62 | 3.53 |
| November 6, 2002 | 1.25 | N/A | 2.95 |
| December 10, 2002 | 1.25 | 3.51 | 3.13 |
| January 28-29, 2003 | 1.25 | N/A | 2.47 |
| March 18, 2003 | 1.25 | 4.33 | 2.63 |
| May 6, 2003 | 1.25 | N/A | 1.58 |
| June 24-25, 2003 | 1 | 2.86 | 1.68 |
| August 12, 2003 | 1 | N/A | 1.72 |
| September 15-16, 2003 | 1 | 3.64 | 1.88 |
| October 28, 2003 | 1 | N/A | 1.81 |
| December 9, 2003 | 1 | 3.46 | 2.15 |
| January 27-28, 2004 | 1 | N/A | 2.00 |
| March 16, 2004 | 1 | 3.23 | 2.61 |
| May 4, 2004 | 1 | N/A | 2.27 |
| June 29-30, 2004 | 1.25 | 4.65 | 3.22 |
| August 10, 2004 | 1.5 | N/A | 2.74 |
| September 21, 2004 | 1.75 | 4.62 | 2.66 |
| November 10, 2004 | 2 | N/A | 2.71 |
| December 14, 2004 | 2.25 | 5.86 | 2.87 |
| February 1-2, 2005 | 2.5 | N/A | 3.21 |
| March 22, 2005 | 2.75 | 5.52 | N/A |
| May 3, 2005 | 3 | N/A | N/A |
| June 29-30, 2005 | 3.25 | 5.26 | N/A |
| August 9, 2005 | 3.5 | N/A | 4.53 |
| September 20, 2005 | 3.75 | 6.59 | N/A |
| November 1, 2005 | 4 | N/A | N/A |
| December 13, 2005 | 4.25 | 6.75 | N/A |
| January 30-31, 2006 | 4.5 | N/A | 4.68 |
| March 27-28, 2006 | 4.75 | 7.13 | N/A |
| May 10, 2006 | 5 | N/A | N/A |
| June 28-29, 2006 | 5.25 | 7.28 | N/A |
| August 8, 2006 | 5.25 | N/A | 4.81 |
| September 20, 2006 | 5.25 | 6.32 | N/A |
| October 24-25, 2006 | 5.25 | N/A | N/A |
| December 12, 2006 | 5.25 | 4.41 | N/A |
| January 30-31, 2007 | 5.25 | N/A | 4.52 |
| March 20-21, 2007 | 5.25 | 4.98 | N/A |
| May 9, 2007 | 5.25 | N/A | N/A |
| June 27-28, 2007 | 5.25 | 5.48 | N/A |
| August 7, 2007 | 5.25 | N/A | 5.56 |
| September 18, 2007 | 4.75 | 5.04 | N/A |
| October 30-31, 2007 | 4.5 | N/A | N/A |
| December 11, 2007 | 4.25 | 7.56 | N/A |
| January 29-30, 2008 | 3 | N/A | 4.36 |
| March 18, 2008 | 2.25 | 7.36 | N/A |
| April 29-30, 2008 | 2 | N/A | 5.43 |
| June 24-25, 2008 | 2 | 7.27 | N/A |
| August 5, 2008 | 2 | N/A | 5.31 |
| September 16, 2008 | 2 | 8.08 | N/A |
| October 28-29, 2008 | 1 | N/A | 0.46 |
| December 15-16, 2008 | 0.125 | 1.46 | N/A |
| January 27-28, 2009 | 0.125 | N/A | 0.00 |
| March 17-18, 2009 | 0.125 | 0 | N/A |
| April 28-29, 2009 | 0.125 | N/A | 0.00 |
| June 23-24, 2009 | 0.125 | 0 | N/A |
| August 11-12, 2009 | 0.125 | N/A | 0.12 |
| September 22-23, 2009 | 0.125 | 0 | N/A |
| November 3-4, 2009 | 0.125 | N/A | N/A |
| December 15-16, 2009 | 0.125 | N/A | N/A |
Source: Federal Reserve Board, Bureau of Labor Statistics, Bureau of Economic Analysis, and Federal Reserve staff calculations.
Slide 5: Rate of Increase in House Prices 1978:Q1-2009:Q3
| Quarter | 4-quarter change (pct) |
|---|---|
| 1978Q1 | 18.4 |
| 1978Q2 | 14.78 |
| 1978Q3 | 15.15 |
| 1978Q4 | 15.32 |
| 1979Q1 | 16 |
| 1979Q2 | 17.35 |
| 1979Q3 | 16.31 |
| 1979Q4 | 16.33 |
| 1980Q1* | 13.21 |
| 1980Q2* | 9.96 |
| 1980Q3* | 10.37 |
| 1980Q4 | 8.72 |
| 1981Q1 | 8.51 |
| 1981Q2 | 8.07 |
| 1981Q3* | 5.44 |
| 1981Q4* | 5.57 |
| 1982Q1* | 3.07 |
| 1982Q2* | 2.54 |
| 1982Q3* | 2.14 |
| 1982Q4* | 1.18 |
| 1983Q1 | 3.09 |
| 1983Q2 | 3.96 |
| 1983Q3 | 5.17 |
| 1983Q4 | 5.72 |
| 1984Q1 | 5.54 |
| 1984Q2 | 5.36 |
| 1984Q3 | 5.19 |
| 1984Q4 | 4.35 |
| 1985Q1 | 4.67 |
| 1985Q2 | 4.77 |
| 1985Q3 | 4.8 |
| 1985Q4 | 6.29 |
| 1986Q1 | 7.3 |
| 1986Q2 | 7.91 |
| 1986Q3 | 8.68 |
| 1986Q4 | 8.19 |
| 1987Q1 | 9.31 |
| 1987Q2 | 10.16 |
| 1987Q3 | 10.16 |
| 1987Q4 | 10.2 |
| 1988Q1 | 8.03 |
| 1988Q2 | 7.58 |
| 1988Q3 | 8.16 |
| 1988Q4 | 8.54 |
| 1989Q1 | 9.56 |
| 1989Q2 | 8.23 |
| 1989Q3 | 6.03 |
| 1989Q4 | 5.49 |
| 1990Q1 | 3.97 |
| 1990Q2 | 3.08 |
| 1990Q3* | 2.19 |
| 1990Q4* | -0.13 |
| 1991Q1* | -1.67 |
| 1991Q2 | -0.69 |
| 1991Q3 | -0.62 |
| 1991Q4 | -0.36 |
| 1992Q1 | 0.4 |
| 1992Q2 | -0.58 |
| 1992Q3 | -0.68 |
| 1992Q4 | 0.18 |
| 1993Q1 | 0.45 |
| 1993Q2 | 0.81 |
| 1993Q3 | 2.01 |
| 1993Q4 | 2.57 |
| 1994Q1 | 2.76 |
| 1994Q2 | 2.76 |
| 1994Q3 | 2.27 |
| 1994Q4 | 1.72 |
| 1995Q1 | 1.39 |
| 1995Q2 | 1.48 |
| 1995Q3 | 2.13 |
| 1995Q4 | 2.18 |
| 1996Q1 | 2.84 |
| 1996Q2 | 3.09 |
| 1996Q3 | 2.54 |
| 1996Q4 | 2.5 |
| 1997Q1 | 2.56 |
| 1997Q2 | 2.62 |
| 1997Q3 | 3.37 |
| 1997Q4 | 4.42 |
| 1998Q1 | 5.56 |
| 1998Q2 | 6.09 |
| 1998Q3 | 6.62 |
| 1998Q4 | 6.96 |
| 1999Q1 | 6.52 |
| 1999Q2 | 7.09 |
| 1999Q3 | 7.21 |
| 1999Q4 | 7.49 |
| 2000Q1 | 8.49 |
| 2000Q2 | 9.16 |
| 2000Q3 | 9.57 |
| 2000Q4 | 9.81 |
| 2001Q1* | 10.18 |
| 2001Q2* | 9.42 |
| 2001Q3* | 9.27 |
| 2001Q4* | 9.07 |
| 2002Q1 | 8.35 |
| 2002Q2 | 8.98 |
| 2002Q3 | 9.79 |
| 2002Q4 | 10.53 |
| 2003Q1 | 10.52 |
| 2003Q2 | 9.98 |
| 2003Q3 | 10.05 |
| 2003Q4 | 9.99 |
| 2004Q1 | 12.61 |
| 2004Q2 | 15.13 |
| 2004Q3 | 15.54 |
| 2004Q4 | 16.63 |
| 2005Q1 | 17.81 |
| 2005Q2 | 16.9 |
| 2005Q3 | 16.8 |
| 2005Q4 | 15.53 |
| 2006Q1 | 11.57 |
| 2006Q2 | 7.39 |
| 2006Q3 | 3.62 |
| 2006Q4 | 1.75 |
| 2007Q1 | -2.4 |
| 2007Q2 | -3.79 |
| 2007Q3 | -6.31 |
| 2007Q4* | -9.98 |
| 2008Q1* | -12.55 |
| 2008Q2* | -15.02 |
| 2008Q3* | -16.81 |
| 2008Q4* | -19.69 |
| 2009Q1* | -22.07 |
| 2009Q2* | -15.72 |
| 2009Q3* | -9.55 |
Note: * refers to National Bureau of Economic Research (NBER) recessions. Return to table
Source: FirstAmerican LoanPerformance.
Slide 6: Conditional Forecasts for the Federal Funds Rate and House Prices
| Quarter | Federal Funds Rate + 2 standard deviations | Federal Funds Rate - 2 standard deviations | Federal Funds Rate | Relative House Prices (index = 0 in 2000Q1) + 2 standard deviations | Relative House Prices (index = 0 in 2000Q1) - 2 standard deviations | Relative House Prices (index = 0 in 2000Q1) |
|---|---|---|---|---|---|---|
| 2000Q1 | 5.68 | 5.68 | 5.68 | 0.00 | 0.00 | 0.00 |
| 2000Q2 | 6.27 | 6.27 | 6.27 | 2.28 | 2.28 | 2.28 |
| 2000Q3 | 6.52 | 6.52 | 6.52 | 3.98 | 3.98 | 3.98 |
| 2000Q4 | 6.47 | 6.47 | 6.47 | 5.67 | 5.67 | 5.67 |
| 2001Q1 | 5.60 | 5.60 | 5.60 | 7.41 | 7.41 | 7.41 |
| 2001Q2 | 4.33 | 4.33 | 4.33 | 9.20 | 9.20 | 9.20 |
| 2001Q3 | 3.50 | 3.50 | 3.50 | 10.86 | 10.86 | 10.86 |
| 2001Q4 | 2.13 | 2.13 | 2.13 | 12.31 | 12.31 | 12.31 |
| 2002Q1 | 1.73 | 1.73 | 1.73 | 13.86 | 13.86 | 13.86 |
| 2002Q2 | 1.75 | 1.75 | 1.75 | 15.33 | 15.33 | 15.33 |
| 2002Q3 | 1.74 | 1.74 | 1.74 | 17.57 | 17.57 | 17.57 |
| 2002Q4 | 1.44 | 1.44 | 1.44 | 19.87 | 19.87 | 19.87 |
| 2003Q1 | 3.09 | 0.28 | 1.25 | 22.25 | 20.16 | 21.75 |
| 2003Q2 | 2.57 | -0.77 | 1.25 | 23.95 | 20.49 | 23.28 |
| 2003Q3 | 2.37 | -1.29 | 1.02 | 25.38 | 20.97 | 25.19 |
| 2003Q4 | 2.91 | -0.93 | 1.00 | 26.76 | 21.65 | 27.41 |
| 2004Q1 | 3.29 | -0.66 | 1.00 | 27.80 | 22.15 | 30.57 |
| 2004Q2 | 4.17 | 0.15 | 1.01 | 28.97 | 22.88 | 34.06 |
| 2004Q3 | 4.87 | 0.82 | 1.43 | 30.15 | 23.69 | 37.06 |
| 2004Q4 | 5.23 | 1.15 | 1.95 | 31.26 | 24.46 | 40.08 |
| 2005Q1 | 5.05 | 0.95 | 2.47 | 32.49 | 25.41 | 44.11 |
| 2005Q2 | 5.34 | 1.24 | 2.94 | 33.77 | 26.43 | 47.63 |
| 2005Q3 | 6.17 | 2.06 | 3.46 | 35.20 | 27.63 | 50.40 |
| 2005Q4 | 6.05 | 1.94 | 3.98 | 36.66 | 28.87 | 52.59 |
| 2006Q1 | 6.49 | 2.37 | 4.46 | 38.02 | 30.03 | 53.99 |
| 2006Q2 | 7.24 | 3.12 | 4.91 | 39.48 | 31.30 | 53.86 |
| 2006Q3 | 6.64 | 2.52 | 5.25 | 41.03 | 32.67 | 52.95 |
| 2006Q4 | 6.74 | 2.62 | 5.25 | 42.59 | 34.02 | 52.99 |
| 2007Q1 | 6.47 | 2.34 | 5.26 | 44.06 | 35.29 | 50.45 |
| 2007Q2 | 6.12 | 1.99 | 5.25 | 45.60 | 36.60 | 48.28 |
| 2007Q3 | 5.60 | 1.46 | 5.07 | 46.78 | 37.54 | 45.44 |
| 2007Q4 | 5.18 | 1.02 | 4.50 | 47.59 | 38.10 | 41.24 |
| 2008Q1 | 4.43 | 0.24 | 3.18 | 48.00 | 38.23 | 35.29 |
| 2008Q2 | 4.25 | 0.02 | 2.09 | 47.84 | 37.80 | 30.14 |
| 2008Q3 | 4.51 | 0.21 | 1.94 | 47.50 | 37.21 | 25.63 |
| 2008Q4 | 3.16 | -1.41 | 0.51 | 47.02 | 36.50 | 18.73 |
Source: Federal Reserve Board, Bureau of Economic Analysis, FirstAmerican LoanPerformance, and Federal Reserve staff calculations.
Slide 7. Alternative Mortgage Instruments and Associated Initial Monthly Payments
| Mortgage Product | Initial Monthly Payment | Payment as a Percentage of FRM Payment |
|---|---|---|
| Fixed-rate mortgage (FRM) | $1,079.19 | 100.0 |
| Adjustable-rate mortgage (ARM) | 903.50 | 83.7 |
| Interest-only/ARM | 663.00 | 61.4 |
| 40-year amortization (ARM) | 799.98 | 74.1 |
| Negative amortization ARM | 150.00 | 13.9 |
| Pay-option ARM | <150.00 | <13.9 |
Note: Interest rates used in these calculations were 6.00 percent for FRMs and 4.42 percent for standard ARMs. For purposes of the calculations, we assume a house price of $225,000 and a 20 percent down payment, and that the borrower qualifies for a prime product.
Source: Interest rates for these calculations are from Freddie Mac and are for the period from 2003 through 2006.
Slide 8. Nontraditional Mortgage Features (Percent of ARM originations)
| Interest Only | Extended Amortization | Negative Amortization Alt-A | Pay-Option Alt-A | |||
|---|---|---|---|---|---|---|
| Subprime | Alt-A | Subprime | Alt-A | |||
| 2000 | 0 | 3 | 0 | 0 | - | - |
| 2001 | 0 | 8 | 0 | 0 | - | - |
| 2002 | 2 | 37 | 0 | 0 | - | - |
| 2003 | 5 | 48 | 0 | 0 | 19 | 11 |
| 2004 | 18 | 51 | 0 | 0 | 40 | 25 |
| 2005 | 21 | 48 | 13 | 0 | 46 | 38 |
| 2006 | 16 | 51 | 33 | 2 | 55 | 38 |
Source: Calculations based on data from First American LoanPerformance.
Slide 9: Monetary Policy and House Prices in the Advanced Economies
| Country | Average Taylor rule residuals (2002:Q1–2006:Q3) | Change in real house prices (2001:Q4–2006:Q3) |
|---|---|---|
| Australia | -0.75 | 36.87 |
| Austria | -1.45 | -3.30 |
| Belgium | -1.73 | 52.27 |
| Canada | -2.19 | 40.66 |
| Switzerland | -1.61 | 7.96 |
| Denmark | -1.54 | 54.70 |
| Germany | -0.70 | -13.47 |
| Spain | -3.51 | 72.23 |
| Finland | 0.01 | 36.13 |
| France | -1.46 | 60.80 |
| United Kingdom | -0.07 | 54.90 |
| Greece | -4.05 | 27.07 |
| Ireland | -3.49 | 68.72 |
| Italy | -1.95 | 31.98 |
| Japan | -0.40 | -20.16 |
| Norway | -0.26 | 32.63 |
| Netherlands | -1.34 | 11.13 |
| New Zealand | -0.10 | 69.92 |
| Sweden | -0.36 | 41.85 |
| United States | -2.45 | 27.91 |
Source: International Monetary Fund.
Slide 10: Current Accounts and House Prices in the Advanced Economies
| Country | Change in Current Account as percent of GDP 2001Q4 to 2006Q3 | Change in real house prices (2001:Q4–2006:Q3) |
|---|---|---|
| Australia | -2.48 | 36.87 |
| Austria | 3.09 | -3.30 |
| Belgium | -1.41 | 52.27 |
| Canada | 0.00 | 40.66 |
| Switzerland | 4.67 | 7.96 |
| Denmark | 1.72 | 54.70 |
| Germany | 5.09 | -13.47 |
| Spain | -5.41 | 72.23 |
| Finland | -5.80 | 36.13 |
| France | -2.69 | 60.80 |
| United Kingdom | -1.45 | 54.90 |
| Greece | -4.25 | 27.07 |
| Ireland | -0.38 | 68.72 |
| Italy | -3.60 | 31.98 |
| Japan | 1.17 | -20.16 |
| Norway | 2.22 | 32.63 |
| Netherlands | 7.75 | 11.13 |
| New Zealand | -3.51 | 69.92 |
| Sweden | 4.36 | 41.85 |
| United States | -2.92 | 27.91 |
International Monetary Fund, Haver Analytics, and Federal Reserve staff calculations.
Last Update:
January 03, 2010