The Evolution Of Money In Capital Market In The Perspective Of The"Missing Money"

Ever since Friedman proposed the money categorization method, adjusting the appropriate categorization has never stopped. The relationship between output and price disappears with the current money supply system. This highlights the importance of adjusting the existing money categorization system. This paper analyzes the money system from the "missing money" phenomenon and argues that money is not "missing", but is simply transferred from the banking system to the capital market, and in turn creates more money with the development of the capital market. That is,"missing money" is de facto "financial disintermediation". The aggregate money should include not only the currency in circulation (MO), money in the banking system (Mb), but also money in the capital market (Mc). Accordingly the new broad money is defined as M3=M2+Mc. The empirical analysis of the size and structure of the new broad money in the United States shows that Mc outnumbers M2in terms of both growth rate and volatility. Also, Granger-causality tests imply that Ml or M2alone fails to explain the price movement. Mc must be incorporated with them to explain the price changes. The quantity theory of money is still valid with the new broad money. At last, after comparing the money aggregate between the U.S. and China using the new broad money M3, we find that the U.S. is the real currency superpower.