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A New Empirically Weighted Monetary Aggregate for the United States

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  • Leigh Drake
  • Terence C. Mills

Abstract

This article uses an approach to long-run modeling proposed by Pesaran, Shin, and Smith (2001) to develop an empirically weighted broad monetary aggregate for the United States and to demonstrate the advantages of this type of aggregate from a monetary policy perspective. The new empirically weighted aggregate performs well in out-of-sample nominal income and inflation forecasting tests, and in respect of the latter is clearly superior to simple sum M2, Divisia M2, and simple sum M2+ (which includes stock and bond mutual funds) over the period 1991--2001. (JEL E41, E52, E58) Copyright 2005, Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 43 (2005)
Issue (Month): 1 (January)
Pages: 138-157

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Handle: RePEc:oup:ecinqu:v:43:y:2005:i:1:p:138-157

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Cited by:
  1. Elger, Thomas & Jones, Barry E. & Nilsson, Birger, 2006. "Forecasting with Monetary Aggregates: Recent Evidence for the United States," Journal of Economics and Business, Elsevier, vol. 58(5-6), pages 428-446.
  2. Jane M. Binner & Peter Tino & Jonathan Tepper & Richard G. Anderson & Barry Jones & Graham Kendall, 2009. "Does money matter in inflation forecasting?," Working Papers 2009-030, Federal Reserve Bank of St. Louis.
  3. Hiew, Lee-Chea & Puah, Chin-Hong & Habibullah, Muzafar Shah, 2013. "The Role of Advertising Expenditure in Measuring Indonesia’s Money Demand Function," MPRA Paper 50223, University Library of Munich, Germany.
  4. Sarwar, haroon & Hussian, zakir & Awan, masood sarwar, 2011. "Money Demand Functions for Pakistan (Divisia Approach)," MPRA Paper 34361, University Library of Munich, Germany.
  5. Tang, Maggie May-Jean & Puah, Chin-Hong & Awang Marikan, Dayang-Affizzah, 2013. "Empirical Evidence on the Long-Run Neutrality Hypothesis Using Divisia Money," MPRA Paper 50020, University Library of Munich, Germany.
  6. Richard G. Anderson & Barry Jones, 2011. "A comprehensive revision of the U.S. monetary services (divisia) indexes," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 325-360.
  7. Binner, Jane M. & Bissoondeeal, Rakesh K. & Elger, C. Thomas & Jones, Barry E. & Mullineux, Andrew W., 2009. "Admissible monetary aggregates for the euro area," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 99-114, February.

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