 2019.
The Federal Reserve uses money aggregates as a metric for how open-market operations, such as trading in Treasury securities or changing the discount rate, affect the economy. Investors and economists observe the aggregates closely because they offer a more accurate depiction of the actual size of a country’s working money supply. By reviewing weekly reports of M1 and M2 data, investors can measure the money aggregates' rate of change and monetary velocity overall.
The Impact of Money Aggregates
Studying monetary aggregates can generate substantial information on the financial stability and overall health of a country. For example, monetary aggregates that grow too rapidly may cause fear of over inflation. If there is a greater amount of money in circulation than what is needed to pay for the same amount of goods and services, prices are likely to rise. If over inflation occurs, central banking groups may be forced to raise interest rates or stop the growth in the money supply.
The amount of money the Federal Reserve releases into the economy is a preferable indication of a nation's economic health.
For decades, monetary aggregates were essential for understanding a nation's economy and were key in establishing central banking policies in general. The past few decades have revealed that there is less of a connection between fluctuations in the money supply and significant metrics such as inflation, gross domestic product (GDP), and unemployment. The amount of money the Federal Reserve releases into the economy is a clear indicator of the central bank's monetary policy. When compared to GDP growth, M2 is still a useful indicator of potential inflation.
According to The Economist, Sudanese citizens are demanding the resignation of President Omar al-Bashir in response to soaring food prices and an economy with inflation over 70%. These same protests are also occurring in Zimbabwe, where the central bank's bond notes, a type of monetary aggregate, are raising fears of hyperinflation after the government increased fuel prices.
In Africa, a more advanced economy, inflation has decreased over the years. In the 1980s, a fifth of countries south of the Sahara endured an average annual inflation of at least 20%. This decade only the two Sudans have high inflation rates.