Several recent articles have made the case that monetary policy should not ignore information about the stance of monetary policy found in a properly specified measure of the money supply. Properly specified means (1) appropriately grouping monetary assets into aggregates based on how money-like they are and (2) recognizing that there are both retail and institutional money assets. Standard measures of money like M2 ignore both issues. The graph above shows monetary aggregates from the Center for Financial Stability that do account for both.
Peter Ireland made the case for these measures at the most recent Shadow Open Market Committee while Doug Irwin did so on the pages of the Financial Times. Steve Hanke, meanwhile, invokes them to warn that the Fed may be undermining their growth by imposing stricter bank capital requirements. My own thoughts on properly measuring money can be found to right under the “Safe Assets, Money, and the Great Recession” header.