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The Signals from Divisia Money in a Rapidly Growing Economy

In: Divisia Monetary Aggregates

Author

Listed:
  • Jeong Ho Hahm
  • Jun Tae Kim

Abstract

Since the mid-1970s, the Korean financial markets have experienced vast innovations and various regulatory policy changes, even though the speed of change has been more moderate than in many advanced industrial nations. Since the end of the 1980s, these financial innovations and regulatory changes have resulted in the rapid growth of non-bank financial institutions and the widespread introduction of various new financial assets in Korean financial markets. These developments have led to large fluctuations in the M2 measure of the money supply, which has been used as the official monetary target variable since 1979. Through portfolio shifts from components of M2 to other highly liquid assets with higher interest rates, which are offered mainly by non-bank financial institutions, higher volatility in M2 growth has raised questions about the appropriateness of M2 as an intermediate target or indicator of monetary policy. In order to overcome this situation, several researchers and practitioners have suggested the use of broader monetary aggregates such as M2B and M3 as replacements for M2.1

Suggested Citation

  • Jeong Ho Hahm & Jun Tae Kim, 2000. "The Signals from Divisia Money in a Rapidly Growing Economy," Palgrave Macmillan Books, in: Michael T. Belongia & Jane M. Binner (ed.), Divisia Monetary Aggregates, chapter 9, pages 200-226, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-28823-2_10
    DOI: 10.1057/9780230288232_10
    as

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