Economics at your fingertips  

Would the addition of bond or equity funds make M2 a better indicator of nominal GDP?

John Duca

Economic and Financial Policy Review, 1994, issue Q IV, 14 pages

Abstract: John Duca assesses the possibility that adding bond mutual funds, equity mutual funds, or both to M2 would improve this monetary aggregate's ability to forecast nominal GDP growth. He finds that M2B (M2 plus bond funds) and M2+ (M2 plus bond and stock funds) are statistically significant in explaining past nominal GDP growth. Duca further shows that M2B and M2+ each yield better forecasts of nominal GDP growth since 1990 than does M2, but to a lesser extent when the federal funds rate and the ten-year Treasury note yield are included in his forecasting model. Because bond and equity mutual funds are less directly influenced by the Federal Reserve than M2, Duca cautions that, relative to M2, M2B and M2+ are likely to be less controllable by the Federal Reserve. ; Given these findings, Duca argues that M2B and M2+ show promise as information variables that the Federal Reserve may use along with other economic indicators in setting monetary policy. Recent forecast results and anecdotal information suggest that if equity funds continue to become more substitutable for nontransactions deposits, M2+ may prove to be increasingly helpful in this capacity.

Keywords: Gross domestic product; Money supply (search for similar items in EconPapers)
Date: 1994
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

Access Statistics for this article

More articles in Economic and Financial Policy Review from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by Amy Chapman ().

Page updated 2019-09-17
Handle: RePEc:fip:fedder:y:1994:i:qiv:p:1-14