It occupies one end of the liquidity spectrum, and so changes in the quantity of money might potentially affect risk premia, and so credit conditions more generally. Gauging that is a formidable challenge. As an input to policy, there is just no alternative to getting one’s hands dirty in analysing the monetary data.
With an institutional rather than functional definition of broad money, special care is needed not to be misled by shifts in the demand for money from the plethora of non-bank financial institutions. This is important if we are to use money as an indicator of nominal trends alongside survey and financial-market-based measures of inflation expectations.