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The case of the missing M2

John Duca

Economic and Financial Policy Review, 1992, issue Q II, 24 pages

Abstract: Since the third quarter of 1990, the growth of M2 in the United States has been weaker than econometric models predicted. John V. Duca assesses whether this shortfall in M2 growth is associated with inflows into bond and equity mutual funds or the thrift resolution process. ; Duca finds that while, to some degree, bond funds are good substitutes for M2, bond and equity funds do not account for the shortfall. Most of the missing M2, he concludes, appears to be related to activity of the Resolution Trust Corporation. Duca reasons that resolution procedures can depress M2 in ways not reflected in standard models, such as by forcing an early call of small time deposits and by imparting the risk of prepayment to small time deposits.

Keywords: Money; supply (search for similar items in EconPapers)
Date: 1992
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