I have discovered after having researched the issue more thoroughly, that I have been mistaken on which money supply definition in Europe best approximates the proper money supply definition, MZM. While it has been obvious to me for quite a while that at least in Europe, M3 is too broad money supply definition, as it includes government securities of a maturity of up to 2 years, I mistakenly thought that M2, while perhaps containing a few deposits that could properly be characterized as time deposits, mainly contained savings deposits in addition to the demand deposits included in M1. But after having discussed the issue today with a person who works in the division of the Swedish statistics bureau responsible for these statistics, I now realize that what in America is referred to as savings deposits is in fact included in M1 in Europe. The deposits which in the European money supply definition is part of M2, but not in M1, are only
deposits which are properly characterized as time deposits. In America, the non-M1 part of M2 includes in addition to small time deposits also savings deposits, so I assumed this was the case in European money supply statistics too.
But as it turns out, this was not the case. This underlies another of my points in my post "MZM outside America"
, that you cannot trust the M1, M2 and M3 definitions to be the same in different countries (except within the EU). And so, if you want to compare monetary growth in different countries you have to make sure the definitions of the seemingly similar monetary aggregates really are the same.
Embarrassingly, in my Timbro report on Swedish monetary policy
, I wrote that M2 was the best money supply definition in Sweden, but now it turns out that it is M1. However, as the trend movements and even quantity of M1 was fairly similar to the period that the report focused on, it actually doesn't make any significant difference in that respect. The main difference is in the monetary trends of recent months, where M1 growth has been much lower than M2 growth. This means that the outlook for the Swedish ( and Euro area) economy is less inflationary then I previously thought it was.