Abstract
In the early 1990s, M2 growth has been weaker than estimated while bond mutual funds have grown rapidly. This study assesses whether adding bond funds to M2 would yield a monetary aggregate that is more explainable using a standard error correction model of money with and without modifications for bond interest rate and thrift resolution effects. Results indicate that it is important to net out institutional and IRA/Keogh assets from bond funds (as is done for M2) and that adding such a bond fund series to M2 results in an aggregate that is somewhat more explainable than M2.
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