Interpreting the Ms after the NOWs

The nationwide introduction of negotiable order of withdrawal (NOW) accounts on December 31, 1980, has produced large shifts of funds from other assets into these interest-bearing transaction accounts. The deposit shifts distort standard money-supply figures compiled by the Federal Reserve System, adding to the difficulty of interpreting money growth. The bulk of the $37.5-billion increase in other checkable deposits in the first four months of the year appears to have been transferred from regular checking accounts, thus tending to depress growth of the narrow definition of money, M-1A. NOW accounts also have boosted M-l B expansion, because the remaining portion of the increase in other checkable deposits originated in funds previously held in savings accounts and other instruments not included in this aggregate. As a result, growth of these two narrow monetary aggregates has deviated significantly from the normal patterns. Moreover, the money-supply measures are not directly comparable with figures reported for periods prior to the introduction of NOW accounts.