The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Monetary Aggregation

  • William A. Barnett
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2263

Abstract

Aggregation theory and index-number theory provide the foundations for official governmental data. However, the monetary quantity aggregates and interest rate aggregates supplied by many central banks are not based on index-number or aggregation theory, but rather are the simple unweighted sums of the component quantities and the quantity-weighted or unweighted arithmetic averages of interest rates. The result has been instability of estimated money demand and supply functions, and a series of ‘puzzles’ in the related applied literature. In contrast, the Divisia monetary aggregates are derived directly from economic index-number theory.

Keywords

Aggregation theory Barnett critique Data construction Equity premium puzzle European Central Bank Divisia index Index number theory Inflation targeting Interest rate targeting Intermediate targets Monetary aggregation Monetary policy Monetary quantity targeting Monetary targeting Monetary velocity Money demand Money supply 

JEL Classifications

C43 E51 E41 G12 C43 C22 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • William A. Barnett
    • 1
  1. 1.