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Monitoring money: should bond funds be added to M2?

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  • John V. Duca

Abstract

One explanation for the unusually slow growth of M2 is that people shifted from bank deposits to higher yielding bond mutual funds. This possibility raises the question of whether the addition of bond funds to M2 would give policymakers a more accurate view of what is happening in the economy. To find the answer, I review why the money supply has been used as an indicator of nominal gross domestic product, explain why declines in bank competitiveness have led to episodes of missing money and describe bond funds. This discussion provides a basis for examining results from modeling M2 with and without bond funds. The major policy implication of this research is that a measure of M2 that includes bond funds should be monitored.

Suggested Citation

  • John V. Duca, 1993. "Monitoring money: should bond funds be added to M2?," Southwest Economy, Federal Reserve Bank of Dallas, issue Jun, pages 1-8.
    • Handle: RePEc:fip:feddse:y:1993:i:jun:p:1-8:n:specialissue
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