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these financial derivatives do not link to the real economy like the measures of M1 and M2 and thus don't correlate at all with any lag you choose to price changes.

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Before we get into any of this, what are you using to calculate price changes?

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any inflation indicator you choose. typically CPI.

another discussion i've had on these boards is that some (including boro) state the M2 is the best measure of inflation since inflation (in monetary supply terms) is the leading indicator of inflation (in price change terms). if this were the case, then it should be clearly visible
in terms ofa lag between increases in money supply and icnrease in prices.

clearly CPI or any other measure of price changes aren't perfect, or by some standards, good. but they do capture enough to be used in a correlation analysis of M2 --> price changes.

when i spoke about price changes above, i definitely meant in general terms about how money supply flows to inflation.

M3 does not have anywhere NEAR the economic significance as M2 as a result of everything i mentioned.

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importantly, M2 DOES communicate good info about both the rate at which borrowing is readily available to US consumers and teh rate at which they take advantage of this borrowing. that is a major issue since the increase in M2 coincides very nicely with the decline of savings in the US.

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This is a curious choice of words, since US consumers are far from the only people who hold US dollars. Was this simply a generalization (equating US consumers with dollar holders)?

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well they are by and large the largest contributors to M2. it is true that central banks contribute largely to M0 (accounts at, say the PBoC that can be converted to cash readily), but in terms of the marginal contribution to M2, US holders of savings accts, money market accounts and time deposits are by and large the main ones.

the foreign central bank holdings (the biggest contributors to foreign holders)...what i think you are talking about when you speak of "dollar holders", correct me if i'm wrong...is actually relatively small compared to M2 (see the M1 section in the chart boro provided).

Barron