Measuring Money Growth When Financial Markets are Changing

James Stock and Martin Feldstein

Scholarly Articles from Harvard University Department of Economics

Abstract: This article considers constructing monetary aggregates in the presence of financial market innovations and changes in the relationship between individual assets and output. We propose two procedures for constructing a monetary aggregate with the objective of providing a reliable monetary leading indicator of nominal GDP. In the first, subaggregates discretely switch in and out; in the second, the aggregate's growth is a time-varying weighted average of the growth of the subaggregates, where the weights follow a multivariate random walk. These procedures are used to examine augmenting M2 with stock and/or bond mutual funds. The alternative aggregates are broadly similar to M2, but during 1992–1993 they outperform M2.

Date: 1996
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Published in Journal of Monetary Economics

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Related works:
Journal Article: Measuring money growth when financial markets are changing (1996)
Working Paper: Measuring Money Growth When Financial Markets Are Changing (1994)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:2799053

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