The Signals from Divisia Money in a Rapidly Growing Economy

Jeong Ho Hahm and Jun Tae Kim

Chapter 9 in Divisia Monetary Aggregates, 2000, pp 200-226 from Palgrave Macmillan

Abstract: Abstract Since the mid-1970s, the Korean financial markets have experienced vast innovations and various regulatory policy changes, even though the speed of change has been more moderate than in many advanced industrial nations. Since the end of the 1980s, these financial innovations and regulatory changes have resulted in the rapid growth of non-bank financial institutions and the widespread introduction of various new financial assets in Korean financial markets. These developments have led to large fluctuations in the M2 measure of the money supply, which has been used as the official monetary target variable since 1979. Through portfolio shifts from components of M2 to other highly liquid assets with higher interest rates, which are offered mainly by non-bank financial institutions, higher volatility in M2 growth has raised questions about the appropriateness of M2 as an intermediate target or indicator of monetary policy. In order to overcome this situation, several researchers and practitioners have suggested the use of broader monetary aggregates such as M2B and M3 as replacements for M2.1

Keywords: Monetary Aggregate; Banking Institution; Demand Deposit; Weak Separability; Saving Deposit (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-28823-2_10

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DOI: 10.1057/9780230288232_10

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