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November/December 1994, 
Vol. 76, No. 6
Posted 1994-11-01

An Alternative Monetary Aggregate: M2 Plus Household Holdings of Bond and Equity Mutual Funds

by Sean Collins and Cheryl L. Edwards

The authors propose that bond and equity mutual funds ought to be added to M2, but offer some caveats. They review the recent behavior of M2 and its deterioration as a predictor of economic activity, provide historical background on the mutual fund industry, and ask whether bond and equity mutual funds meet the tests of “moneyness” usually applied to assets considered for inclusion in a monetary aggregate. They also discuss the data needed to construct a theoretically sound monetary aggregate that includes bond and equity mutual funds, describe how they constructed such an aggregate (referred to as M2+), and point out some of the drawbacks of this aggregate.