Constructing Divisia Monetary Aggregates for Singapore

Since Barnett (1978) derived the user cost price of money, the economic theory of monetary services aggregation has been developed and extended into a field of its own with solid foundations in microeconomic theory. Divisia monetary aggregates have repeatedly been shown to be strictly preferred to their simple-sum counterparts, which have no competent foundations in microeconomic aggregation or index number theory. However, most central banks in the world, including that of Singapore, the Monetary Authority of Singapore (MAS), still report their monetary aggregates as simple summations. Recent DSGE macroeconomic models often ignore aggregate quantities of money as possible instruments or targets of monetary policy. In the case of a small open economy like Singapore’s, exchange rates are often targeted to achieve goals for inflation and output gap. See, e.g., McCallum (2006). Is that because quantities of money are irrelevant to economic activity? To examine the relevance of Divisia monetary aggregates in predicting real economy activity in Singapore, we construct monetary services indices for Singapore using the recent credit-card- augmented Divisia monetary aggregates formula. We produce those state-of-the-art monetary services indexes for Jan 1991 to Mar 2021. In future work, we plan to use our data to explore central bank policy in Singapore and to propose improvements in that policy. By making our data available to the public, we encourage others to do the same.