[lbo-talk] Discontinuance of M3 - Hang On

Doug Henwood dhenwood at panix.com
Fri Nov 18 13:09:21 PST 2005


boddi satva wrote:


>So if part of the Fed's mandate is to concentrate on growing monetary
>and credit aggregates, why not keep looking at M3?

Because it tells you next to nothing. The best way to predict GDP is with last quarter's GDP; adding M3 (or M1 or M2) to the equation barely improves the accuracy. And the correlations between M growth and GDP growth are strictly nominal - no one could ever tell you how the influence breaks down into volume vs. price effects.

Doug



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