M1: The Ever-changing Past
Monetary policy hinges on the growth of M1 and its relationship to the rest of the economy. Newly released money supply data play a vital role in the policy process by providing information on current monetary conditions and the effect of recent policies. However, the initial money supply figures contain a high level of error which may cause recent monetary growth to appear more erratic than it actually was. This makes it difficult for policymakers to determine if unexpected movements in initial M1 data reflect fundamental changes in economic behavior that require a new policy response.
