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A minor redefinition of M2


  • William C. Whitesell
  • Sean Collins


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.

Suggested Citation

  • William C. Whitesell & Sean Collins, 1996. "A minor redefinition of M2," Finance and Economics Discussion Series 96-7, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:96-7

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    References listed on IDEAS

    1. 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.
    2. 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.
    3. 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.).
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    Cited by:

    1. Richard G. Anderson & Barry E. Jones & Travis D. 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.
    2. Nelson, Edward, 2013. "Friedman's monetary economics in practice," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 59-83.
    3. Barnett, William A, 1997. "Which Road Leads to Stable Money Demand?," Economic Journal, Royal Economic Society, vol. 107(443), pages 1171-1185, July.
    4. Carlson, John B. & Craig, Ben & Schwarz, Jeffrey C., 2000. "Structural uncertainty and breakpoint tests: an application to equilibrium velocity1," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 101-115.
    5. Orphanides, Athanasios & Porter, Richard D., 2000. "P revisited: money-based inflation forecasts with a changing equilibrium velocity," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 87-100.

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    Money supply;


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