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The Real-Time (In)Significance of M2Jeffery D. Amato |
Abstract This paper examines the relationships between output, prices, interest rates, and M2 using data sets which were available in real time from 1973:1 to 1997:4. The purpose is threefold. First, the paper delineates a potential role for M2 in policymaking. Second, it provides a more accurate basis for interpreting historical policymaking. Third, it evaluates the cause and effect of the historical redefinitions of M2. The latter two objectives make it necessary to use data which was available to policymakers at the time decisions were made. In regard to the first objective, the approach is both novel and complementary to the existing literature. Keywords: Granger causality, variance decomposition, money rule, data revision. Jeffery D. Amato is an economist at the Federal Reserve Bank of Kansas City. Charmaine Buskas and Hank Hui provided excellent research assistance. The author is grateful to Dean Croushore and Tom Stark for providing their real-time data on nominal and real output. The views expressed herein are solely those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System.Back to top RWP home |