Compression in monetary user costs in the aftermath of the financial crisis: implications for the Divisia M4 monetary aggregate

Ryan Mattson () and Victor (Vic) Valcarcel

Applied Economics Letters, 2016, vol. 23, issue 18, 1294-1300

Abstract: Differences in Divisia and simple-sum money arise from appropriate weighing mechanisms in Divisia, which rely on information on the user cost of monetary assets. We show convergence in the growth rate of Divisia M4 and its simple-sum counterpart beginning in early 2009, shortly after the collapse in the Federal Funds rate. This phenomenon results from compression in user costs.

Date: 2016
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DOI: 10.1080/13504851.2016.1153780

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