+ Large-denomination time deposits and repurchase agreements + Money market mutual fund shares (institutional) + Repurchase agreements + Eurodollars Total M3

1,105.2 767.7 511.7 341.1 8,528.2


Note: The Travelers checks item includes only traveler's checks issued by non-banks, while traveler's checks issued by banks are included in the Demand deposits item, which also includes checkable deposits to businesses and which also do not pay interest.

The M3 monetary aggregate adds to M2 somewhat less liquid assets such as large-denomination time deposits and repurchase agreements, Eurodollars, and institutional money market mutual fund shares.

Because we cannot be sure which of the monetary aggregates is the true measure of money, it is logical to wonder if their movements closely parallel one another. If they do, then using one monetary aggregate to predict future economic performance and to conduct policy will be the same as using another, and it does not matter much that we are not sure of the appropriate definition of money for a given policy decision. However, if the monetary aggregates do not move together, then what one monetary aggregate tells us is happening to the money supply might be quite different from what another monetary aggregate would tell us. The conflicting stories might present a confusing picture that would make it hard for policymakers to decide on the right course of action.

Figure 1 plots the growth rates M1, M2, and M3 from 1960 to 2002. The growth rates of these three monetary aggregates do tend to move together; the timing of their rise and fall is roughly similar until the 1990s, and they all show a higher growth rate on average in the 1970s than in the 1960s.

Yet some glaring discrepancies exist in the movements of these aggregates. According to M1, the growth rate of money did not accelerate between 1968, when it

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