Divisia monetary aggregates with unobserved assets

Maksim Isakin and Apostolos Serletis

Macroeconomic Dynamics, 2026, vol. 30, -

Abstract: We assume that some monetary assets are unobserved and that the demand for them affects the demand for observed assets. We develop a model of the demand for both observed and unobserved assets based on the normalized quadratic flexible functional form and augment the Divisia monetary aggregates with unobserved assets. We construct a new set of Divisia aggregates and argue that they are more accurate measures of money in terms of capturing the relationship between velocity and the opportunity cost of holding money, a relationship that has been a major concern in monetary economics for more than half a century.

Date: 2026
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