Consistent with previous studies, we measure [M.sub.t] by the nominal seasonally adjusted M2 monetary aggregate
, [Y.sub.t] is real GDP, and [P.sub.t] represents the implicit price deflator.
Figure 4 displays the M2 monetary aggregate
, the combination of currency and demand deposits, measured monthly over the 1926-35 period.
The broader M2 monetary aggregate
has grown at more moderate rates, 10.3% in 2001 and an annualized 6.7% so far this year.
The M2 monetary aggregate
, a fairly broad definition of money, is used in the graphical analysis.
Johansen tests are first conducted using the M1 or M2 monetary aggregate
and industrial output or the price level, with results showing cointegration between each monetary aggregate and output, as well as between each aggregate and the price level.(12)