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Do Currency Equivalent Monetary Aggregates Have an Edge over Their Simple Sum Counterparts?

Author

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  • Sunil Paul

    (Sunil Paul is affiliated with Madras School of Economics, Chennai, Tamil Nadu, India.)

  • M. Ramachandran

    (M. Ramachandran (corresponding author) is affiliated with Department of Economics, Pondicherry University, Pondicherry 605 014, India. E-mail: ramchn2003@yahoo.co.in)

Abstract

The currency equivalent (CE) monetary aggregates are interpreted as aggregation theoretic money stock measures by Rotemberg et al. ( 1995 ), Barnett ( 1991 ) and Kelly ( 2009 ) and are far more superior to simple sum aggregates as a policy variable. In this context, the components of four official measures of monetary constructs—M1, M2, M3 and L1—are used to construct monthly CE monetary aggregates for the period from April 1993 to June 2009. Quarterly estimates of CE aggregates are also obtained by taking quarterly averages of monthly aggregates. The empirical evidences in terms of information content, velocity behaviour and cyclical behaviour show that there is a potential gain of using CE aggregates as compared to their sum counterparts in applications of policy interest. JEL Classification: C43 E49

Suggested Citation

  • Sunil Paul & M. Ramachandran, 2013. "Do Currency Equivalent Monetary Aggregates Have an Edge over Their Simple Sum Counterparts?," South Asian Journal of Macroeconomics and Public Finance, , vol. 2(2), pages 107-143, December.
    • Handle: RePEc:sae:smppub:v:2:y:2013:i:2:p:107-143
    DOI: 10.1177/2277978713503606
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    References listed on IDEAS

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    Cited by:

    1. Sunil Paul & Sartaj Rasool Rather & M. Ramachandran, 2015. "Money and Inflation: Evidence from P-Star Model," Working Papers 2015-115, Madras School of Economics,Chennai,India.
    2. Naveen Srinivasan & Parush Arora, 2020. "If Monetary Aggregates, then Divisia," Working Papers 2020-192, Madras School of Economics,Chennai,India.

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    More about this item

    Keywords

    Currency equivalent monetary aggregates; information content; velocity behaviour; India;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other

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