an even greater support to the economy than cash - outs last year was the extraction of home equity associated with a record 6. 4 million existing home sales, including condos, at record prices. this pace of ownership turnover of the existing housing stock also reflected the near - record - low mortgage rates. we estimate that mortgage originations for existing home purchase last year topped $ 600 billion. subtracting the home sellers'repayments of the remaining debt of their outstanding mortgages, we infer a net increase of approximately $ 350 billion in debt on the homes that turned over last year. that debt increase exactly matches the extraction of previously built - up equity on those homes plus fees and taxes folded into the loans. not surprisingly, the change in mortgage debt is highly correlated with the realized capital gains on the turnover of those homes. we do not have a direct measure of how the equity extracted from last year's home turnover was expended. it is likely, however, that home sellers, after setting aside a down payment for the family's next home, expended a considerable part of their home equity extraction on goods and services. in addition to the extraction of equity financed by regular mortgages last year, approximately $ 130 billion was drawn through a net increase of home equity loans, also a record, and also presumed to be the consequence of low mortgage rates as well as accelerated appreciation of homes. federal reserve studies of the disposition of home equity loans suggest a slightly higher rate of repayment of credit card and other consumer nonmortgage debt than our cash - out disposition surveys concluded. all in all, the amount of previously built - up equity extracted from owner - occupied homes last year, net of fees and taxes, totaled $ 700 billion by our calculations, or more than 10 percent of estimated equity at the beginning of the year. home equity extraction for the economy as a whole is, of necessity, financed by debt. in fact, the $ 700 billion of equity extraction is similar to the increase in mortgage debt last year. despite the exceptionally large extraction of equity, the total remaining equity at the end of 2002 was higher in dollar terms than at the beginning of the year, owing to a 7 percent increase in existing home prices over the four quarters of last year and $ 300 billion in new home construction, net of mortgage extensions on those homes. mortgage debt as a percent of the market value of homes accordingly rose somewhat more than 1 percentage point during the year. mortgage debt

" assessments of the level of maximum sustainable employment, because this level cannot be directly observed and can be inferred only with considerable uncertainty. thus, in making these assessments, monetary policy makers need to draw on a wide range of indicators from labor, product, and financial markets. 9 benefits of central bank communication a central element in successful monetary policy is the establishment of a nominal anchor. why is this so important? the expectations for inflation of households and firms are a key factor in determining the actual behavior of inflation. 10 in the absence of a firm nominal anchor, these expectations may wander as the private sector revises its assessment of the rate at which inflation is likely to settle, and those movements in expectations for future inflation can generate pressure on the current inflation rate. mishkin ( 2007f, 2007g, 2008a, 2008e ) discusses the lender - of - last - resort function and reviews the federal reserve's recent measures for providing additional liquidity to financial markets. mishkin ( 2008c ). mishkin ( 2008b ). this is the point of milton friedman's famous adage, " inflation is always and everywhere a monetary phenomenon " ( friedman, 1963, p. 17 ). mishkin ( 2007b ). mishkin ( 2007c ). mishkin ( 2007a ). by establishing a transparent and credible commitment to a specific numerical inflation objective, monetary policy can provide a firm anchor for long - run inflation expectations, thereby directly contributing to the objective of low and stable inflation. 11 additionally, the presence of a firm nominal anchor gives the central bank greater flexibility to respond decisively to adverse demand shocks. such a commitment helps ensure that an aggressive policy easing is not misinterpreted as signaling a shift in the central bank's inflation objective and thereby minimizes the possibility that inflation expectations could move upward and lead to a rise in actual inflation. a strong nominal anchor can be especially valuable in periods of financial market stress, as we have been experiencing recently, when prompt and decisive policy action may be required to minimize the risk of a severe contraction in economic activity that could exacerbate uncertainty and financial market stress. 12 thus, the establishment of an explicit numerical inflation objective can play an important role in promoting financial stability as well as the stability of employment and inflation. more broadly, it should be noted that central bank transparency contributes importantly to democratic accountability and economic prosperity. 13 in particular, in a democratic society, the