Now it’s official. The M3 money-supply series is dead and buried. The official word from the Fed and its minions: it’s no big deal, really. (For some background on M3 and its scheduled demise, see our previous post here.)
In yesterday’s weekly release of money supply data, the central bank said of the newly defunct series: “M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.”
Maybe this is the Fed’s contribution for reducing the government budget deficit. In any case, Edward Nelson of the St. Louis Fed agrees with the powers that be back in Washington, explaining that a wider definition of money supply, which is M3’s raison d’etre relative to M2, isn’t always better. Writing in the April issue of the St. Louis bank’s Monetary Trends, Nelson asserts that a “broader definition of money is not necessarily always preferable….Monetary analysis needs to draw the line between money and nonmoney assets, and some financial instruments lack sufficient similarities with traditional money to merit inclusion in a monetary aggregate.”