Financial Technology Shocks and the Case of the Missing M2
M2 growth was unusually weak in the early-1990s when its velocity soared. Although M2 growth subsequently recovered, its velocity plateaued at a high level, giving rise to a case of missing money. These swings in M2 growth have accompanied opposite swings in bond mutual fund inflows. M2 growth is better tracked and the "missing M2" problem is resolved when money models are modified to account for shifts in bond mutual fund costs. This approach avoids the capital gains and portfolio substitution problems posed by adding bond or equity funds to M2, while capturing the substitution effects relevant to money demand.
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Volume (Year): 32 (2000)
Issue (Month): 4 (November)
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