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.
