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What’s Driving Up Money Growth?

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Abstract

Two key monetary aggregates, M1 and M2, have grown quickly recently—especially M1, the narrow aggregate. In this post, we show that we can attribute most, but not all, of the recent high money growth rate of M1 to low current interest rates as well as the growth in bank reserves that has resulted from the Fed’s asset purchase programs. It’s unlikely that the current high growth rate will continue in the long term, however, as both low interest rates and the Fed’s expansion of bank reserves will likely be reversed as economic growth accelerates.

Suggested Citation

  • James J. McAndrews & Donald P. Morgan & James Vickery, 2012. "What’s Driving Up Money Growth?," Liberty Street Economics 20120523, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86807
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    More about this item

    Keywords

    Money growth; QE2; large-scale asset purchases; QE1;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services

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