Keywords: Definition of money, M2
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.
Full paper (343 KB PDF)
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Last update: July 16, 1997