In the previous article, I showed that, despite the decision by Ben Bernanke to stop publishing data on the US M3 aggregate money supply when he took up his post as chairman of the Fed in February 2006, it is possible to use another concept to highlight the relationship between changes in the money supply held by US citizens and real GDP.
This money supply held by the United States is equal to the sum of the monetary aggregate M2 (whose figures are still published by the Fed) and money market mutual funds, MMMF.
The increase in this money supply held by American citizens leads to a fall in real GDP, and vice versa, which has been verified over a long period, since this data has been published by our friend Fred from Saint Louis.
More specifically, it is the variation in what I call the free money supply, which is the difference between the year-on-year percentage change in this money supply defined by the sum of the M2 monetary aggregate and deposits in money market mutual funds (MMMF), and (minus) the change in real GDP that causes an inverse reaction in the real GDP,
Document 1:
Over the long term, the increase in the free money supply tends to fall from 5.5% to 3.5% at present, while real GDP growth also tends to fall from 3.5% to 2.0%, as indicated by the almost parallel arithmetic trend lines,
Document 2:
The axis of symmetry between real GDP and free money supply is also on a downward trend of two points, from 4.5% to 2.5% over the long term,
Document 3:
The polynomial trend curves of order 5 of the free money supply and real GDP confirm a certain trend that is currently and temporarily convergent,
Document 4:
Taking into account the M2 monetary aggregate alone is not enough to give an accurate picture of the reality of the evolution of the free money supply, insofar as the impact of deposits in money market mutual funds is not taken into consideration.
Document 5:
The difference between the variations in the free money supply calculated with MMMF compared to that excluding them (i.e. by only using the figures for the M2 monetary aggregate) is small but not insignificant,
Document 6:
***
For the record, evolution of deposits in money market mutual funds (MMMF),
Document 7:
Focus on the recent period,
Document 8:
© Chevallier.biz