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Are NOWs being used as savings accounts?

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Listed:
  • Timothy Q. Cook
  • Timothy D. Rowe

Abstract

Has the introduction of interest-bearing NOW accounts altered the nature of M1? That monetary aggregate, of course, is intended to measure purely transactions balances as typified by conventional checking accounts. But some observers think that consumers are using the NOW component of M1 as savings as well as transactions balances. If so, then M1 contains a nontransactions component; consequently, its growth rate compatible with any given rate of GNP growth is higher than before the introduction of NOWs. In this article, Timothy Q. Cook and Timothy D. Rowe marshal evidence on the use of NOW accounts to see if they are being employed as savings vehicles. They try to determine if consumers have consolidated their regular checking and savings accounts into NOWs. They also compare the characteristics of NOWs to those of other transactions and savings accounts. In general, they find no evidence of widespread use of NOWs as savings accounts. They conclude that there is no reason to believe that the introduction of interest-bearing checking accounts has altered the long-run relationship between M1 and economic activity.

Suggested Citation

  • Timothy Q. Cook & Timothy D. Rowe, 1985. "Are NOWs being used as savings accounts?," Economic Review, Federal Reserve Bank of Richmond, vol. 71(May), pages 3-13.
    • Handle: RePEc:fip:fedrer:y:1985:i:may:p:3-13:n:v.71no.3
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    References listed on IDEAS

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    1. Rik Hafer, 1984. "The money-GNP link: assessing alternative transaction measures," Review, Federal Reserve Bank of St. Louis, vol. 66(Mar), pages 19-27.
    2. John P. Judd, 1983. "The recent decline in velocity: instability in money demand or inflation?," Economic Review, Federal Reserve Bank of San Francisco, issue Spr, pages 12-19.
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    Keywords

    NOW accounts;

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