Economists agree that management of monetary policy by the Federal Reserve Bank has experienced different regimes during the period 1959:2 to 2013:2. What is more difficult is how to determine these regimes because the operating procedures employed by the Fed have changed overtime. Most economists agree that four different regimes have existed at the Federal Reserve over the past 30 years . These correspond to periods of funds-rate, nonborrowed-reserves, borrowed-reserves and fund-rate operating procedures. Nonborrowed-reserves is a measure of the reserves in the banking system. Non-borrowed reserves represent the numerical difference between total reserves minus funds that have been borrowed from the Fed discount window. The first element of this equation consists of the total reserves held in deposit at the Fed by member banks plus the composite cash in their vaults. The second element is money borrowed by banks through the Fed discount window. Borrowed-reserves are reserves that were obtained by borrowing from the Central Bank.
In this context, M2 is M1 plus most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under USD 100,000). M1: The total amount of M0 (cash/coin) outside of the private banking system plus the amount of demand deposits, travelers checks and other checkable deposits. M0: The total of all physical currency, including coinage. M0 = Federal Reserve Notes + US Notes + Coins. It is not relevant whether the currency is held inside or outside the private banking system as reserves.
Another relevant point concerning the work of the Austrian school is the development of the theory of the business cycle [30,32]. Mises shows that the creation of expansionary credit and deposits, without corresponding effective savings caused by a banking system based on a fractional reserve ratio directed by a central bank, not only generates cyclical and uncontrolled growth of the money supply but also in the creation of lending at interest rates that are artificially low. This inevitably generates a "flare" artificial and unsustainable production process. Thus, the economy tends to become excessively capital intensive. The expansionary process resulting in inflation tends to revert. Entrepreneurs will liquidate the investments wrongly induced by artificial credit expansion [30,31,32]. 2b1af7f3a8