The case for Divisia monetary statistics: A Bayesian time-varying approach

Ellington, Michael

doi:10.1016/j.jedc.2018.10.001

Cited by 21 publications

(19 citation statements)

References 22 publications

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“…The theoretical framework is provided in and , 2017, 2018. Accordingly, the user cost price of a credit card's services is…”

Section: Credit-card-augmented Divisia Monetary Aggregatesmentioning

confidence: 99%

“…Barnett (2007) extended the theory to multilateral monetary aggregation over different countries. More recently, and , 2017, 2018 have taken credit card transactions into account and produced the theoretical framework for the new credit-card-augmented Divisia monetary aggregates. Other extensions have included measurement of the economic capital stock of money, based on the expected discounted flow of monetary services, and extension of the risk adjustment to the case of intertemporal non-separability.…”

Section: Introductionmentioning

confidence: 99%

“…Key articles, books, and works on the topic can be found at the online library of Center for Financial Stability (CFS). Since simple sum monetary aggregation is theoretically inadmissible, having no competent theoretical foundations, it should be no surprise that in almost all cases, the Divisia monetary index has proven to be strictly preferable to its simple sum counterpart, relative to all available empirical tests (see, for example, Barnett et al (1984), Barnett (2011), Belongia andIreland (2014), andEllington (2018)). Belongia and Ireland (2015) are critical of the omission of monetary quantities in recent mainstream macroeconomic models.…”

Section: Introductionmentioning

confidence: 99%

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Constructing Divisia Monetary Aggregates for Singapore

Barnett

Nguyen

2021

JRFM

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Since Barnett 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 preferable 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 macroeconomic research about Singapore tends to focus on exchange rates as a monetary policy target but ignores the aggregate quantity of money. Is that because quantities of money are irrelevant to economic activity? To examine the role of monetary quantities as potential monetary instruments, indicators, or targets and their relevance to predicting real economic activity in Singapore, this paper applies the user cost of money formula and the recently developed credit-card-augmented Divisia monetary aggregates formula to construct monetary services indexes for Singapore. We produce those state-of-the-art monetary services indexes from Jan 1991 to Mar 2021. We see that Divisia measures behave differently from simple sum measures in the period before the year 2000, while interest rates were high. Credit-card-augmented Divisia monetary services move closely with the conventional Divisia monetary aggregates, since the volume of credit card transactions in Singapore is relatively small compared with other monetary service assets. 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.

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“…The theoretical framework is provided in and , 2017, 2018. Accordingly, the user cost price of a credit card's services is…”

Section: Credit-card-augmented Divisia Monetary Aggregatesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Constructing Divisia Monetary Aggregates for Singapore

Barnett

Nguyen

2021

JRFM

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“…Schunk [22] similarly provides the forecasting performance of Divisia monetary aggregates with a four-variable vector autoregression including real GDP, GDP deflator, Treasury bill rate, and monetary aggregates. Ellington [23] evaluates the relative empirical benefits of Divisia monetary aggregates and finds a strong link between Divisia money and economic activity over the business cycle, with that link substantially less prominent when using simple sum monetary aggregation. These studies also confirm the forecasting ability of Divisia aggregates by using out-of-sample forecasts of economic activity.…”

Section: Recent Literaturementioning

confidence: 99%

The Barnett Critique

Barnett

Park

2021

Encyclopedia

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The Barnett critique states that there is an internal inconsistency between the theory that is implied by simple sum monetary aggregation (perfect substitutability among components) and the economic theory that produces the models within which those aggregates are used. That inconsistency causes the appearance of unstable demand and supply for money. The incorrect inference of unstable money demand has caused serious harm to the field of monetary economics.

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“…They show that most of the puzzles and paradoxes in monetary economics have been produced by use of simple sum money measures, and are resolved by use of aggregation theoretic monetary aggregates, such as Barnett's (1980) Divisia monetary aggregates. See, for example, Serletis and Shahmoradi (2006), Barnett and Chauvet (2011), Serletis and Rahman (2013), Hendrickson (2014), Serletis and Gogas (2014), Belongia and Ireland (2014, 2016, 2018, Ellington (2018), This paper examines correlation and dependence structures between money and the level of economic activity in the USA in the context of a Markov-switching copula vector error correction model. We use the error correction model to focus on the short-run dynamics between money and output while accounting for their long-run equilibrium relationship.…”

Section: Introductionmentioning

confidence: 99%

Dependence Structure Between Money and Economic Activity: A Markov-Switching Copula Vec Approach

Serletis

2021

Macroecon. Dynam.

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This paper examines correlation and dependence structures between money and the level of economic activity in the USA in the context of a Markov-switching copula vector error correction model. We use the error correction model to focus on the short-run dynamics between money and output while accounting for their long-run equilibrium relationship. We use the Markov regime-switching model to account for instabilities in the relationship between money and output, and also consider different copula models with different dependence structures to investigate (upper and lower) tail dependence.

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The case for Divisia monetary statistics: A Bayesian time-varying approach

Cited by 21 publications

References 22 publications

Constructing Divisia Monetary Aggregates for Singapore

Constructing Divisia Monetary Aggregates for Singapore

The Barnett Critique

Dependence Structure Between Money and Economic Activity: A Markov-Switching Copula Vec Approach

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