The Composition and Construction of Monetary Aggregates

James L Swofford and Gerald A Whitney

Economic Inquiry, 1991, vol. 29, issue 4, 752-61

Abstract: An economic monetary aggregate is composed from a set of monetary goods that are at least weakly separable from other goods in the optimizing agent's utility function. The authors construct such an aggregate using a Divisia index number. They demonstrate that, through the middle of the 1980s, forecasts of the inflation rate based on their economic monetary aggregate are superior to forecasts based on the simple sum monetary aggregates of M1 or M2. Copyright 1991 by Oxford University Press.

Date: 1991
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