play the role of anchor in monetary policy formulation.
The conventional method to identify a contractionary monetary policy shock assumes that a contractionary monetary policy shock is associated with increases in the short-term interest rates or decreases in the monetary aggregate
The usefulness of the monetary aggregate
approach depends on the existence of a monetary aggregate
with a stable and causal relationship to inflation that the central bank can control over the medium to long run.
If velocity is variable and unpredictable, the relationship between money and prices is difficult to characterize, and monetary aggregates
can't help policymakers track inflation.
We show that changing the monetary aggregate
measure from M1 to MZM from 1980 onward preserves the long-run relationship between real money, the opportunity cost of money, and economic activity up to a constant factor.
What is required is a monetary aggregate
that can endogenously respond to changes in wealth holder preferences, possibly caused by financial innovations, which impinge on the information content of monetary aggregates
or their sub components.
Sims examines two models: a three-variable model of the monetary aggregate
(M1), industrial production (IP), and the wholesale price index (WPI) and a four-variable model of R (a short-term interest rate, here the four--six month commercial paper rate), M1, WPI, and IP.
Economic aggregation theory provides methods for choosing which assets to include in a monetary aggregate
and how to construct aggregator functions, whereas index number theory provides parameter- and estimation-free methods to perform the aggregation.
4) The monetary policy frameworks of many Latin American central banks have used the information conveyed by a monetary aggregate
to conduct monetary policy, but the other two elements (public announcements of the targets and some type of accountability mechanism) rarely have been present at the same time.
The M2 monetary aggregate
, a fairly broad definition of money, is used in the graphical analysis.
In order to achieve these objectives, the monetary authorities regulate the volume and cost of the broader monetary aggregate
One nominal anchor used by almost all central banks at one time or another is a target growth path for a monetary aggregate
such as the monetary base or M1, M2, or M3.
The targeted monetary aggregate
was supposed to be a leading indicator of impending inflation, so timely reactions were to have avoided the boom-bust scenarios which emerged in practice.
Johansen tests are first conducted using the M1 or M2 monetary aggregate
and industrial output or the price level, with results showing cointegration between each monetary aggregate
and output, as well as between each aggregate and the price level.
In Magel, the employee was responsible for supervising the collection, editing and transmittal of deposit dates used by the Federal Reserve to calculate monetary aggregate