M2 Growth in 1995: A Return to Normalcy?

In years past, the growth rates of money measures such as M2 received considerable attention because evidence showed that there was a simple and stable long-run relationship between M2, nominal income, and inflation. Many analysts believed that abrupt changes in money growth induced swings in output, while changes in the trend rate of money growth led to changes in the underlying rate of inflation. Indeed, the view that M2 is an important monetary policy guide is reflected in the fact that the Federal Reserve is required by law to specify growth ranges for the monetary and credit aggregates.