Info

Source: Wall Street Journal, Friday, January 3, 2003, p. C10.

Source: Wall Street Journal, Friday, January 3, 2003, p. C10.

Annual Growth Rate (%)

Annual Growth Rates
FIGURE 1 Growth Rates of the Three Money Aggregates, 1960-2002

Sources: Federal Reserve Bulletin, p. A4, Table 1.10, various issues; Citibase databank; www.federalreserve.gov/releases/h6/hist/h6hist1.txt.

was in the 6-7% range, and 1971, when it was at a similar level. In the same period, the M2 and M3 measures tell a different story; they show a marked acceleration from the 8-10% range to the 12-15% range. Similarly, while the growth rate of M1 actually increased from 1989 to 1992, the growth rates of M2 and M3 in this same period instead showed a downward trend. Furthermore, from 1992 to 1998, the growth rate of M1 fell sharply while the growth rates of M2 and M3 rose substantially; from 1998 to 2002, M1 growth generally remained well below M2 and M3 growth. Thus, the different measures of money tell a very different story about the course of monetary policy in recent years.

From the data in Figure 1, you can see that obtaining a single precise, correct measure of money does seem to matter and that it does make a difference which monetary aggregate policymakers and economists choose as the true measure of money.

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