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The case of the "missing M2."

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  • John V. Duca

Abstract

Since the third quarter of 1990, the growth of M2 in the United States has been weaker than econometric models predicted. John V. Duca assesses whether this shortfall in M2 growth is associated with inflows into bond and equity mutual funds or the thrift resolution process. ; Duca finds that while, to some degree, bond funds are good substitutes for M2, bond and equity funds do not account for the shortfall. Most of the missing M2, he concludes, appears to be related to activity of the Resolution Trust Corporation. Duca reasons that resolution procedures can depress M2 in ways not reflected in standard models, such as by forcing an early call of small time deposits and by imparting the risk of prepayment to small time deposits.

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Paper provided by Federal Reserve Bank of Dallas in its series Research Paper with number 9202.

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Date of creation: 1992
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Handle: RePEc:fip:feddrp:9202

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Keywords: Money supply;

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References

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  1. Fred Furlong & Bharat Trehan, 1990. "Interpreting recent money growth," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue sep28.
  2. Milbourne, Ross, 1986. "Financial Innovation and the Demand for Liquid Assets: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 18(4), pages 506-11, November.
  3. Duca, John V., 1992. "US business credit sources, demand deposits, and the 'missing money'," Journal of Banking & Finance, Elsevier, Elsevier, vol. 16(3), pages 567-583, June.
  4. Stephen M. Goldfeld, 1976. "The Case of the Missing Money," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 683-740.
  5. Hetzel, Robert L & Mehra, Yash P, 1989. "The Behavior of Money Demand in the 1980s," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 21(4), pages 455-63, November.
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Cited by:
  1. Kirill Sosunov, 2012. "Estimation of the Money Demand Function in Russia," HSE Working papers, National Research University Higher School of Economics WP BRP 20/EC/2012, National Research University Higher School of Economics.
  2. Robert L. Hetzel, 1992. "How useful is M2 today?," Economic Review, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Sep, pages 12-25.
  3. John V. Duca, 2011. "Did the commercial paper funding facility prevent a Great Depression-style money market meltdown?," Working Papers, Federal Reserve Bank of Dallas 1101, Federal Reserve Bank of Dallas.
  4. Carl E. Walsh, 1993. "What caused the 1990-1991 recession?," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, pages 33-48.
  5. Ireland, Peter N, 1995. "Endogenous Financial Innovation and the Demand for Money," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(1), pages 107-23, February.
  6. Aron, Janine & Duca, John V & Muellbauer, John & Murata, Keiko & Murphy, Anthony, 2010. "Credit, Housing Collateral and Consumption: Evidence from the UK, Japan and the US," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7876, C.E.P.R. Discussion Papers.
  7. John B. Carlson & Dennis L. Hoffman & Benjamin D. Keen & Robert H. Rasche, 1999. "Results of a study of the stability of cointegrating relations comprised of broad monetary aggregates," Working Paper 9917, Federal Reserve Bank of Cleveland.
  8. John V. Duca, 1993. "Should bond funds be included in M2?," Research Paper, Federal Reserve Bank of Dallas 9321, Federal Reserve Bank of Dallas.
  9. Cara Lown & Stavros Peristiani & Kenneth J. Robinson, 1999. "What was behind the M2 breakdown?," Financial Industry Studies Working Paper 99-2, Federal Reserve Bank of Dallas.
  10. John B. Carlson & Susan M. Byrne, 1992. "Recent behavior of velocity: alternative measures of money," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-10.
  11. De Santis, Roberto A., 2012. "Quantity theory is alive: the role of international portfolio shifts," Working Paper Series, European Central Bank 1435, European Central Bank.
  12. David Cook & Woon Gyu Choi, 2007. "Financial Market Risk and U.S. Money Demand," IMF Working Papers 07/89, International Monetary Fund.
  13. Martin Schmidt, 2003. "Money and prices: evidence from the G7 countries," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(17), pages 1799-1809.
  14. John P. Judd & Bharat Trehan, 1992. "Money, credit, and M2," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue sep4.
  15. Yash P. Mehra, 1992. "Has M2 demand become unstable?," Economic Review, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Sep, pages 26-35.
  16. Schmidt, Martin B., 2001. "The long and short of money and prices: a market equilibrium approach," Journal of Economics and Business, Elsevier, Elsevier, vol. 53(6), pages 563-583.
  17. Gauger, Jean, 1998. "Economic Impacts on the Money Supply Process," Journal of Macroeconomics, Elsevier, Elsevier, vol. 20(3), pages 553-577, July.

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