M3 in Italy

by on January 20, 2012 at 11:36 am in Economics | Permalink

The link is here.  There is a lot of talk of self-defeating austerity, and I agree that spending cuts often lead to real and nominal gdp declines in the short run, but most likely this is the critical problem, including in Greece.

For the pointer I thank Antony Slumbers.

1 andy January 20, 2012 at 11:57 am

I am probably repeating myself, but… does anyone have a graph of M3 in California?

2 HermitTheFrog January 20, 2012 at 12:06 pm

“…most likely this is the critical problem”, what is “this” referring to? The austerity?

3 NAME REDACTED January 20, 2012 at 12:13 pm

The M3 graph.
M3 has collapsed in it.

4 Michael Fisk January 20, 2012 at 12:31 pm

As have pretty much every other measurement of money supply there – no matter how you look at it, money supply appears to be quite contractionary in Italy.

While comparable numbers of M3 in the US are unofficial (the Fed stopped tracking it in 2006), some private estimates had it falling at a nearly 10% annualized rate in early/mid 2010 before increasing again.

5 NAME REDACTED January 20, 2012 at 12:43 pm

Yah, them no longer tracking it was a pretty stupid idea.

6 Claudia January 20, 2012 at 12:56 pm


“M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.”

PS (see Wkipedia) M2 is money and “close substitutes”…M3 adds large and long-term deposits

7 Rahul January 20, 2012 at 1:36 pm

I’m naive about this, shouldn’t this relation always hold:

M1 <= M2 <= M3

Why doesn't it in the graph shown?

8 NAME REDACTED January 21, 2012 at 2:04 am

Yes, Claudia, I know what they said. I disagree with them.

9 Heli January 31, 2012 at 10:36 pm

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10 bkpsch February 3, 2012 at 1:17 pm

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12 Ryan Cooper January 20, 2012 at 12:16 pm

Ok, I should really know more econ shorthand, but really you should toss in a quick link to explain just what the devil is M3. Take pity!

13 Ryan Cooper January 20, 2012 at 12:18 pm

Adding that M3 is basically just a measure of the money supply. Headed down like that should cause something close to panic. That’s Milton Friedman’s classic explanation of what turned the 1929 crash into the Great Depression.

14 NAME REDACTED January 20, 2012 at 12:43 pm

While I think he’s mistaken about cause and effect. It is a really important measure.

15 Rahul January 20, 2012 at 12:56 pm

In something as integrated as the Eurozone (with minimal money movement barriers) how is nation-specific M3 measured?

16 Wonks Anonymous January 20, 2012 at 1:20 pm

I’m pretty sure Friedman focused on M2, which was likewise not tracked during the Great Depression.

17 Nylund January 20, 2012 at 12:29 pm

But isn’t that sort of the point that many Euro critics have?

The ECB’s monetary policy is entirely terrible for countries like Italy. Italy needs a lot more monetary expansion, but because of some combination of concerns that the proper “Italian” monetary policy is the improper one for Germany and a more general sort of ramped up inflation hawkishness, it won’t happen. Instead it’s austerity measures that become self-defeating when not counter-acted by monetary policy (whether they’re self-defeating even with a counter-acting monetary action is more debatable).

This is basically the point Krugman was making back in October.

“So the ECB was calling for austerity everywhere. Was any concern expressed about how that would affect Europe-wide growth? Was there any suggestion of expansionary monetary policy to offset such a coordinated fiscal contraction? No and no.”

It’s also pretty much the same point that was made on the Economist blog yesterday:


Related piece by Martin Feldstein:


But it’s all related. Hyper-sensitive inflation hawkism mixed with a surreal faith in the power of expansionary austerity is not only not a solution, it’ll just make things worse.

PS. I’m not quite sure why you’re singling out M3 in the title when all the aggregates are tracking each other pretty closely. The story isn’t much different using M2.

18 JWatts January 20, 2012 at 3:06 pm

“Hyper-sensitive inflation hawkism mixed with a surreal faith in the power of expansionary austerity”

-1, If you need that many hyperbolic adjectives to describe another opinion then it suggests that emotion might be tainting your conclusion.

19 The Original Frank January 20, 2012 at 1:20 pm

The local money supply in a fixed rate system is endogenous! A capital inflow raises the money supply and a capital outflow reduces the money supply. The ECB does not determine any one member country’s money supply. Now, why might Italy have a capital outflow? That’s a real puzzle…?

20 T. Shaw January 20, 2012 at 2:55 pm

Endogenous! My Thesaurus has 678 pages. It does not have “endogenous.”

Anyhow, Eurozone has the ECB. Does Italy have such an institution with open markets operations and/or authority to set reserve requirements?

Someone above asked what is California’s M3? It may be measured but Califirnia can’t do much to affect in state M measures. The Fed does that and always gets it wrong.

I hear that when do fiscal austerirty they need to have monetary expansion.

After you have mixed apples and oranges, let’s get at the passion fruits: which ways are consumer prices, employment and GDP trending?

21 Bill January 20, 2012 at 6:41 pm

“Endogenous! My Thesaurus has 678 pages. It does not have ‘endogenous’.”

I guess endogenous is exogenous to your thesaurus.

22 Willitts January 20, 2012 at 11:31 pm


23 NAME REDACTED January 21, 2012 at 2:04 am


24 rcyran January 20, 2012 at 1:26 pm

Seems that Fisher’s theory of debt deflation is still in effect:

If so, austerity probably won’t help. And it might be time to update this post:

(given how Ireland’s economy seems to be weakening rapidly)

25 JWatts January 20, 2012 at 3:14 pm

“If so, austerity probably won’t help…given how Ireland’s economy seems to be weakening rapidly”

Well this is only relevant to the relative economic growth of similar countries. If Ireland’s growth is bad with austerity, but is on par with a similar countries growth without austerity measures, then austerity was the best approach. Just pointing out Ireland’s slowing growth in isolation doesn’t really mean much.

26 DarrenM January 20, 2012 at 4:01 pm

I don’t have the link, but someone pointed out Irish ‘austerity’ isn’t really all that austere. I suppose it’s relative. It seems like to many ‘austerity’ means blowing through borrowed money slightly less rapidly than otherwise.

27 NAME REDACTED January 21, 2012 at 2:05 am

I don’t think any of the Austerities have been that austere. Just like our “cuts” have been actually increases.

28 Foo January 20, 2012 at 2:18 pm

Not very knowledgeable about it, but reading Wikipedia it appears M3 is essentially the sum of banknotes held by Italian citizens and deposits in Italian banks.

If so, isn’t its decrease an obvious consequence of increased default risk of Italy and thus of Italian banks holding a large amount of Italy bonds, leading people to withdraw their money and put it in banks less exposed to the default risk?

29 UnlearningEcon January 20, 2012 at 2:52 pm

Seems like further evidence in favour of endogenous money to me.

30 NAME REDACTED January 21, 2012 at 2:06 am

If money is endogenous, but interest rates are not, then the fed adjusting interest rates is a terrible idea.

31 Merijn Knibbe January 20, 2012 at 5:01 pm


if you look at the ‘çounterparts’ of M-3 in the money accounts of the Central Banks you will find out that austerity and a decline of the amount of money ARE PRETTY MUCH THE SAME THING in the present situation. (Post-) Keynesians are talking about deleveraging all the time, this is the problem they are pointing at.

Look at graph 2 in this: http://www.paecon.net/PAEReview/issue58/Koo58.pdf

For Greece, look at this: http://rwer.wordpress.com/2012/01/05/the-euro-is-leaving-greece-and-a-new-great-depression-has-entered/

M-3 is of course shown on ‘shadow statistics’, which indeed shows that M-3 behaves quite a bit different than M-1 and M-2

32 Yancey Ward January 20, 2012 at 8:39 pm

The sheep escaping the pen where the wolves thought they had them trapped.

33 Willitts January 20, 2012 at 11:32 pm

What’s happening to the price level in Italy? If they don’t have deflation, is this just a reflection of diminished aggregate demand and declining velocity of money?

34 Carsten Valgreen January 21, 2012 at 4:45 am

I love the way that chart is cut of in 2004. Why not show previous cycles? In 2001 all three metrics were as low in Italy as they are now. Manipulative not to show them I think.

35 prior_approval January 22, 2012 at 4:25 am

‘Manipulative not to show them I think.’
Shhh – don’t reveal the secret.

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