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Money, Output, and Prices: Evidence from a New Monetary Aggregate

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  • Rotemberg, Julio J
  • Driscoll, John C
  • Poterba, James M

Abstract

This paper derives a new utility-based monetary aggregate, the currency-equivalent aggregate. It equals the stock of currency that would be required for households to obtain the liquidity services that they get from their entire collection of monetary assets. This aggregate is derived from preferences assuming that these satisfy a separability assumption in addition to satisfying the requirements for Divisia aggregation. The resulting aggregate remains valid when asset characteristics change and equals the sum of individuals' currency-equivalent holdings. It also predicts output movements better than simple-sum aggregates such as M1 and M2.

Suggested Citation

  • Rotemberg, Julio J & Driscoll, John C & Poterba, James M, 1995. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 67-83, January.
  • Handle: RePEc:bes:jnlbes:v:13:y:1995:i:1:p:67-83
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    More about this item

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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