More on M1 and M2

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In May, 2020 the definitions of M1 and M2 changed.  I wrote about this earlier.  But I overlooked a few rule changes that could be important.  Here’s more on M1 and M2.  This is from the FRED blog at the Federal Reserve Bank of St. Louis.

The Fed’s Regulation D governs classification of assets.  One section limited the number of transfers into and out of a savings account during a month.  Most people are completely unaware that this limit ever existed.  I knew about it because I hit the limit once or twice.

That limit no longer exists.  Meaning savings deposits are now closer substitutes to checkable deposits because the cost of converting savings deposits into checkable deposits is lower.  This rule change is consistent with adding savings deposits to the very liquid assets previously included in M1.

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.