Technological advances or regulatory changes in the real economy are also likely to have direct implications for banks and financial markets. Financial innovation abounds in such a situation. Financial regulators are faced with new instruments and processes to police.
However, in recognition of the longer-run relationship of prices and M2, especially its stable long-term velocity, this broader aggregate was accorded more weight, along with a variety of other indicators, in setting our policy stance. As an indicator, M2 served us well for a number of years.