Redefining the Monetary Aggregates: A Clean Sweep

The quantity of money plays a fundamental role across the different sectors of the economy. Practitioners, researchers, and policymakers use measures of the money stock to gauge and predict activity in financial markets and the macroeconomy. This paper focuses on measuring money properly by correctl...

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Bibliographic Details
Published in:Eastern economic journal 2006-10, Vol.32 (4), p.661-672
Main Authors: Cynamon, Barry Z., Dutkowsky, Donald H., Jones, Barry E.
Format: Article
Language:English
Subjects:
Aggregates
Bank accounts
Bank reserves
Checking accounts
Customers
Economic models
Federal Reserve monetary policy
Financial investments
Interest rates
Investment funds
Investments
Monetary aggregates
Monetary theory
Money market accounts
Money market deposit accounts
Money market mutual funds
Money measures
Reserve requirements
Studies
Sweep accounts
Time series
Travelers checks
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Summary:The quantity of money plays a fundamental role across the different sectors of the economy. Practitioners, researchers, and policymakers use measures of the money stock to gauge and predict activity in financial markets and the macroeconomy. This paper focuses on measuring money properly by correctly classifying sweep programs. Researchers propose new simple-sum monetary aggregates that adjust the conventional measures to account for funds in sweep programs. In a sweep program, banks move a portion of funds from customer demand deposits (DD) or other checkable deposits into instruments with zero statutory reserve requirements. This study confronts the issue of the role of retail and commercial DD sweep programs in properly measuring money. This financial innovation results in highly liquid transactions balances appearing within instruments outside M1A, M1, M2, M2M, and MZM. As a result, these aggregates underreport the total money balances that they originally set out to record. [PUBLICATION ABSTRACT]
ISSN:0094-5056
1939-4632