Investors are naturally interested in key measures of economic activity, especially those used to forecast the likelihood of changes in economic trends. Monetary aggregates are the components that make up the overall measure of the money supply. In turn, the money supply is part of the Index of Leading Economic Indicators that is used to forecast possible recessions and recoveries. A change in the money supply tends to anticipate changes in the inflation rate. The Federal Reserve Board tracks monetary aggregates and publishes the information on a regular basis.
Obtain the data required to calculate monetary aggregates from the Data Releases section of the website of the Board of Governors of the Federal Reserve System. There are two monetary aggregates in use as of 2012: M1 and M2. The Federal Reserve publishes the data included in monetary aggregates on weekly and monthly schedules. A third monetary aggregate measure, M3, is no longer used.
Compute the total M1 monetary aggregate. M1 includes the most easily spent, or liquid, forms of money. The components of M1 are currency, travelers’ checks, demand deposits and other deposits on which people can write checks. M1 includes currency currently outside the United States because it can still be spent in the U.S. economy. Add the amounts of each form of money together to calculate M1.
Calculate M2 by adding M1 to the total amounts of time deposits of less than S100,000, savings accounts and individual, or retail, money market funds. These additional forms of money make up most of the money supply. For example, in April 2008, M1 totaled $1.4 trillion and M2 totaled $7.7 trillion.
- The Federal Reserve System discontinued tracking a third monetary aggregate, M3, in 2006 because it did not add significant useful information not already provided by M2. M3 consisted of large time deposits and institutional deposits. The Federal Reserve continues to publish data on large time deposits on a quarterly basis.
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