A New Empirically Weighted Monetary Aggregate for the United States

Leigh Drake and Terence C. Mills

Economic Inquiry, 2005, vol. 43, issue 1, 138-157

Abstract: This article uses an approach to long-run modeling proposed by Pesaran, Shin, and Smith (2001) to develop an empirically weighted broad monetary aggregate for the United States and to demonstrate the advantages of this type of aggregate from a monetary policy perspective. The new empirically weighted aggregate performs well in out-of-sample nominal income and inflation forecasting tests, and in respect of the latter is clearly superior to simple sum M2, Divisia M2, and simple sum M2+ (which includes stock and bond mutual funds) over the period 1991--2001. (JEL E41, E52, E58) Copyright 2005, Oxford University Press.

JEL-codes: E41 E52 E58 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (14)

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