Monetary Aggregates and Monetary Policy

At a quick glance, the behavior of various monetary aggregates in the recent past is quite bewildering. Since the beginning of 1991 (through June, 1992) Ml has grown at an annual rate of 10.5 percent, the adjusted monetary base at an annual rate of 7.8 percent, adjusted reserves at an annual rate of 11.1 percent, but M2 has grown at an annual rate of only 2.4 percent. Since January, 1992, Ml has grown at an annual rate of 11.3 percent, but M2 at an annual rate of only .8 percent. In the summer of 1991 M2 effectively stayed constant, while February, 1992 it has actually fallen slightly. This disparate behavior of the various monetary aggregates has provoked recent discussions of monetary policy that are reminiscent of and appear to closely parallel the debate over the behavior of the narrowly defined monetary aggregates approximately a decade ago. The common thread in both of these presentations is that there is something historically unprecedented and perhaps unique in the behavior of the aggregate under consideration.