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Components of M2


What is money? Well, there are many statistical definitions and FRED’s new release tables can help us sort them out. The release table for monetary aggregates shows us the various components of M2, the broadest monetary aggregate currently measured. The major components are represented in the graph above, as shares of total M2. The strictest measure of money is currency, in red at the bottom. Add to that checkable deposit accounts in banks and elsewhere, and you have M1. Add savings accounts, small time-deposit accounts, and money funds to M1, and you get M2.

The graph shows how the composition of M2 has changed over time. Deposit accounts in banks used to be much more important. This has changed as the financial industry and its customers have become more sophisticated. Also, regulatory changes as well as amendments to accounting rules have had a direct impact on measurements or have nudged market participants to hold liquidity or savings differently. But currency has been largely unaffected by such changes.

How this graph was created: Go to the Money Stock Measures release, choose a table from the top, click the series you want graphed, and click on “add to graph.” Then, open the tab for the currency component and move it to the bottom of the pile by clicking on the “down” button. Finally, under graph settings, set graph type to “bar” with stacking set to “percent.” You will notice that the early data series have only currency; thus, start the sample in January 1959.

Suggested by Christian Zimmermann

View on FRED, series used in this post: CURRNS, DEMDEPNS, NOM1M2N, OCDNS


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