What's the best measure of liquidity or money inside the market? Often times, the Federal Reserve prints money or buy stocks or give emergency loans, and all these actions cause money to increase in the market; however, from what I understand some indicators don't reflect "inflationary" measures taken by the Federal Reserve, so is there an indicator that reflects the impact every "inflationary" measure the Federal Reserve make?
1 Answer
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What's the best measure of liquidity ... inside the market?
For liquidity there is theoretically no best measure. Based on context different measures can be considered best. Common measures that are used in research are ones that are based on transaction costs, volume, price and market impact. You can read about various measures of liquidity of financial markets in Sarr and Lybek (2002), however, to reiterate there is no measure that could be shown to be superior to all other measures.
What's the best measure of ... money inside the market?
The best considered measures are various M measures (e.g. M1, M2, M3 etc.). Wikipedia happens to have handy chart showing what various M measures cover. By combining several M measures you can produce a measure that covers virtually everything that can be considered money.
PS: Fed actually does not directly print money, unlike some other central banks like ECB. In US money are printed by the US treasury.
