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A minor redefinition of M2

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  • William Whitesell
  • Sean Collins
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    Abstract

    This paper recommends redefining M2 by shifting overnight wholesale RPs and overnight Eurodollars from non-M1 M2 to non-M2 M3. The overnight components are quite volatile and difficult to measure accurately. Their movements no longer exhibit the negative correlation with demand deposits that had been observed in 1980, when these components were originally included in M2. The redefinition does not affect the quarterly and annual behavior of M2, nor its relationship to interest rates and income.

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    File URL: http://www.federalreserve.gov/pubs/feds/1996/199607/199607abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/1996/199607/199607pap.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 96-7.

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    Date of creation: 1996
    Date of revision:
    Handle: RePEc:fip:fedgfe:96-7

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    Related research

    Keywords: Money supply;

    References

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    1. P.A. Tinsley & Bonnie Garrett & M.E. Friar, 1978. "The measurement of money demand," Special Studies Papers 133, Board of Governors of the Federal Reserve System (U.S.).
    2. Gregory D. Hess & Charles S. Morris, 1995. "Money is what money predicts: the M* model of the price level," Research Working Paper 95-05, Federal Reserve Bank of Kansas City.
    3. Richard D. Porter & Thomes D. Simpson & Eileen Mauskopf, 1979. "Financial Innovation and the Monetary Aggregates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(1), pages 213-230.
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    Cited by:
    1. William A. Barnett, 1996. "Which Road Leads to Stable Money Demand?," Macroeconomics 9611001, EconWPA.
    2. Edward Nelson, 2011. "Friedman's monetary economics in practice," Finance and Economics Discussion Series 2011-26, Board of Governors of the Federal Reserve System (U.S.).
    3. Richard G. Anderson & Barry Jones & Travis Nesmith, 1997. "Special report: The monetary services index project of the Federal Reserve Bank of St. Louis: introduction to the St. Louis monetary services index project," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 25-30.

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