Evidence indicates that special factors such as the steepening of the yield curve in the early '90s and the increased availability and liquidity of mutual funds caused the public to redirect part of its savings balances from bank deposits to bond and stock mutual funds from 1990 to 1994. Except...

Standard M2 demand regressions generate prediction errors in 1990, 1991, and 1992 that cumulate to an overprediction of M2 of about 4.2 to 4.3 percent by the second quarter of 1992. These prediction errors are not large and can be accounted for by M2 demand regressions that include a yield curve...