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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page A Minor Redefinition of M2
William Whitesell and Sean Collins

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.

Keywords: Definition of money, M2

Full paper (343 KB PDF)

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Last update: July 16, 1997