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Do Monetary Aggregates Belong In A Monetary Model? Evidence From The Uk

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  • Mehmet Ezer

    (Randolph Macon College)

Abstract

Conventional monetary models focus on interest rates and omit monetary aggregates from policy discussions. This paper examines whether augmenting the measure of monetary policy with monetary aggregates helps determine more robust links between policy and economic fluctuations. After constructing the Divisia money index for the UK, I employ structural vector autoregression to identify two different UK monetary policy regimes. Inclusion of this (correct) measure of money and disentangling the money supply from demand resolve the price and liquidity puzzles. The results point to the informational content embedded in monetary aggregates, suggesting they should be taken into account in evaluations of monetary policy.

Suggested Citation

  • Mehmet Ezer, 2019. "Do Monetary Aggregates Belong In A Monetary Model? Evidence From The Uk," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 22(4), pages 509-530.
  • Handle: RePEc:idn:journl:v:22:y:2019:i:4f:p:509-530
    DOI: https://doi.org/10.21098/bemp.v22i4.1184
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    More about this item

    Keywords

    Time Series Models; Monetary Policy; Central Bank Policies;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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