Tuesday, April 21, 2015

The Components of M2 Money

One more time.

I just want to be comfortable with the FRED datasets on savings, so I feel like I know what they show. If one is a stock and I think it's a flow, obviously I have something wrong. I want to be able to talk about these datasets without wondering what I have wrong. So I look.

I Googled total savings. The first hit was Total Savings Deposits at all Depository Institutions - FRED .... FRED's Notes on that graph say

The savings deposits component of M2 consists of passbook-type savings deposits as well as MMDAs at banks and thrifts.

That got my attention. I started looking at economic data in the late 1970s. I started with the Bicentennial Edition of the Historical Statistics. That was before a lot of the financial innnovation. So they didn't have the money measure MZM and other, newer measures, and they didn't have retail money funds and other, newer things to do with money. At least, I don't think they had those things yet.

But I don't know, maybe they did. Maybe I was just trying to simplify things enough to understand the economy. I know they had the M1 and M2 money measures. M1 counted money people spend. M2 counted money people have whether they spend it or save it. The distinction was between money people ordinarily spend and money people ordinarily don't spend. It still is. FRED's Notes on M1 say "M1 includes funds that are readily accessible for spending." M2 starts with M1 and adds things like "Total Savings Deposits at all Depository Institutions".

Anyway, when I read the notes on that savings series and saw them describe it as "The savings deposits component of M2" I had a thought: If I can find this component of M2 money, maybe I can find the others also. So I went to FRED for the Notes on M2:

M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs).

Here are the FRED series I came up with:

  •  M2SL for M2 Money;
  •  M1SL for M1 Money;
  •  SAVINGSL for savings deposits;
  •  STDSL for small-denomination time deposits; and
  •  RMFSL for retail money market mutual funds.

(I started with FRED's SAVINGS series but switched to SAVINGSL when I noticed the other four end with the letters "SL".)

For the record, the STDSL series notes say

The small-denomination time deposits component of M2 includes time deposits at banks and thrifts with balances less than $100,000.

and the RMFSL series notes say

The retail money funds component of M2 is constructed from weekly data collected by the Investment Company Institute...

So both these series are at least in the ballpark if we're looking for components of M2 money.

Here are those series all shown separately:

Graph #1: M2 Money (dark blue) and Components
A bit messy.

Same data series, shown as percent of M2:

Graph #2: Components as Percent of M2
Oh, that's not any better.

Get rid of the M2SL series, and look at the components-as-percent on a stacked area graph:

Graph #3: Components of M2 Money
A little easier to see now.

1 comment:

The Arthurian said...

Oh, well look at that: I got the same incorrect label on the vertical axis, same as the FRED Blog got in their Components of M2 post!

The label on my graph should be: M2 Components as a Percent of M2