The Currency Equivalent Index and the Current Stock of Money

Abstract

The currency equivalent index provides an elegant method for measuring the stock of money, but it rests upon assumptions that do not match an important characteristic of the data. Thus, it is unclear what, if anything, the CE measures. This paper attempts to answer this question by deriving the current stock of money (CSM), which is dened to be the discounted present value of the monetary service ows provided by only the current portfolio of monetary assets, and then analyzing the assumptions under which the current stock of money can be measured by the currency equivalent index.

The stock of money and why you should care

“…. N , Kelly (2008) showed that the current stock of money reduces to the currency equivalent index (Rotemberg et al, 1995). Thus under assumptions one through four, the current stock of money can be written as…”