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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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Suggested Citation

  • John V. Duca, 1992. "The case of the "missing M2."," Working Papers 9202, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddwp:9202
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    File URL: http://dallasfed.org/assets/documents/research/papers/1992/wp9202.pdf
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    Cited by:

    1. Duca, John V., 2013. "Did the commercial paper funding facility prevent a Great Depression style money market meltdown?," Journal of Financial Stability, Elsevier, vol. 9(4), pages 747-758.
    2. 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 7876, C.E.P.R. Discussion Papers.
    3. Schmidt, Martin B., 2001. "The long and short of money and prices: a market equilibrium approach," Journal of Economics and Business, Elsevier, vol. 53(6), pages 563-583.
    4. Carlson, John B. & Hoffman, Dennis L. & Keen, Benjamin D. & Rasche, Robert H., 2000. "Results of a study of the stability of cointegrating relations comprised of broad monetary aggregates," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 345-383, October.
    5. De Santis, Roberto A., 2012. "Quantity theory is alive: the role of international portfolio shifts," Working Paper Series 1435, European Central Bank.
    6. Ireland, Peter N, 1995. "Endogenous Financial Innovation and the Demand for Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 107-123, February.
    7. Carl E. Walsh, 1993. "What caused the 1990-1991 recession?," Economic Review, Federal Reserve Bank of San Francisco, pages 33-48.
    8. John P. Judd & Bharat Trehan, 1992. "Money, credit, and M2," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep4.
    9. Abdur Chowdhury & Mark Wheeler, 1999. "The velocity of US M2 in the 1990s: some further evidence," Applied Economics, Taylor & Francis Journals, vol. 31(9), pages 1137-1144.
    10. Cara S. Lown & Stavros Peristiani & Kenneth J. Robinson, 1999. "What was behind the M2 breakdown?," Staff Reports 83, Federal Reserve Bank of New York.
    11. Robert D. Laurent, 1993. "Indicators, performance, and policy in the 1930s and today," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 2-11.
    12. Robert L. Hetzel, 1992. "How useful is M2 today?," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 12-25.
    13. 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.
    14. Gauger, Jean, 1998. "Economic Impacts on the Money Supply Process," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 553-577, July.
    15. Yash P. Mehra, 1992. "Has M2 demand become unstable?," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 26-35.
    16. Martin Schmidt, 2003. "Money and prices: evidence from the G7 countries," Applied Economics, Taylor & Francis Journals, vol. 35(17), pages 1799-1809.

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    Keywords

    Money supply;

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