Monetary Aggregation: A Reconciliation of Theory and Central Bank Practice

22 Pages Posted: 15 Feb 2006

See all articles by Huw R. Pill

Huw R. Pill

Harvard University - Business, Government and the International Economy Unit

Mahmood Pradhan

Bank of England

Date Written: October 1994

Abstract

Monetary assets have different characteristics which make them more or less useful in facilitating transactions. Academic economists have consistently argued that these differences should be incorporated in monetary aggregates by assigning assets different weights. However, central banks continue to use conventional aggregates with equal weights for all assets. For a transactions model of money, which the academic view implicitly embodies, weighted aggregates, although imperfect, are certainly superior. However, once this structural model is abandoned in favor of alternatives where monetary assets play a different role, central banks` continued use of simple sum measures of money may be justified.

JEL Classification: C3, E51, E52, E58

Suggested Citation

Pill, Huw R. and Pradhan, Mahmood, Monetary Aggregation: A Reconciliation of Theory and Central Bank Practice (October 1994). IMF Working Paper No. 94/118, Available at SSRN: https://ssrn.com/abstract=883860

Huw R. Pill (Contact Author)

Harvard University - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States
617-495-6788 (Phone)
617-496-5994 (Fax)

HOME PAGE: http://www.people.hbs.edu/hpill

Mahmood Pradhan

Bank of England

Threadneedle Street
London, EC2R 8AH
United Kingdom

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