The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Monetary Aggregation

  • William A. Barnett
Reference work entry


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.


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 
This is a preview of subscription content, log in to check access.


  1. Anderson, R., B. Jones, and T. Nesmith. 1997. Building new monetary services indexes: Concepts, data and methods. Federal Reserve Bank of St Louis Review 79: 53–82.Google Scholar
  2. Barnett, W. 1978. The user cost of money. Economics Letters 1, 145–49. Repinted in Barnett and Serletis (2000, ch. 1).Google Scholar
  3. Barnett, W. 1980. Economic monetary aggregates: An application of aggregation and index number theory. Journal of Econometrics 14, 11–48. Reprinted in Barnett and Serletis (2000, ch. 2).Google Scholar
  4. Barnett, W. 1987. The microeconomic theory of monetary aggregation. In New approaches in monetary economics, ed. W. Barnett and K. Singleton. Cambridge: Cambridge University Press. Reprinted in Barnett and Serletis (2000, ch. 3).Google Scholar
  5. Barnett, W. 2003. Aggregation-theoretic monetary aggregation over the euro area, when countries are heterogeneous. Working paper no. 260. Frankfurt: European Central Bank.Google Scholar
  6. Barnett, W. 2007. Multilateral aggregation-theoretic monetary aggregation over heterogeneous countries. Journal of Econometrics 136: 457–82.CrossRefGoogle Scholar
  7. Barnett, W., and J. Binner. 2004. Functional structure and approximation in econometrics. Amsterdam: North-Holland.CrossRefGoogle Scholar
  8. Barnett, W., and A. Serletis (eds.). 2000. The theory of monetary aggregation. Amsterdam: North-Holland.Google Scholar
  9. Barnett, W., and S. Wu. 2005. On user costs of risky monetary assets. Annals of Finance 1: 35–50.CrossRefGoogle Scholar
  10. Barnett, W., D. Fisher, and A. Serletis. 1992. Consumer theory and the demand for money. Journal of Economic Literature 30, 2086–119. Reprinted in Barnett and Serletis (2000, ch. 18).Google Scholar
  11. Barnett, W., Y. Liu, and M. Jensen. 2000. CAPM risk adjustment for exact aggregation over financial assets. Macroeconomic Dynamics 1: 485–512.Google Scholar
  12. Belongia, M., and J. Binner. 2000. Divisia monetary aggregates: Theory and practice. Basingstoke: Palgrave.CrossRefGoogle Scholar
  13. Belongia, M., and J. Binner. 2005. Money, measurement, and computation. Basingstoke: Palgrave.Google Scholar
  14. Chrystal, A., and R. MacDonald. 1994. Empirical evidence on the recent behaviour and usefulness of simple-sum and weighted measures of the money stock. Federal Reserve Bank of St Louis Review 76: 73–109.Google Scholar
  15. De Peretti, P. 2005. Testing the significance of the departures from utility maximization. Macroeconomic Dynamics 9(3): 373–97.CrossRefGoogle Scholar
  16. Diewert, W. 1976. Exact and superlative index numbers. Journal of Econometrics 4: 115–45.CrossRefGoogle Scholar
  17. Divisia, F. 1925. L’Indice monétaire et la théorie de la monnaie. Revue d’Economie Politique 39: 980–1008.Google Scholar
  18. Fleissig, A., and G. Whitney. 2003. A new PC-based test for Varian’s weak separability conditions. Journal of Business and Economic Statistics 21: 133–44.CrossRefGoogle Scholar
  19. Jones, B., D. Dutkowsky, and T. Elger. 2005. Sweep programs and optimal monetary aggregation. Journal of Banking and Finance 29: 483–508.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • William A. Barnett
    • 1
  1. 1.