The stock of money and why you should care [chapter]

Logan J. Kelly
2009 Advances in Econometrics  
In this paper, I will examine the problems created by incorrectly using a simple sum monetary aggregate to measure the monetary stock. Specically, I will show that simple sum monetary aggregate confounds the current stock of money with the investment stock of money and that this confounding leads the simple sum monetary aggregate to report an articially smooth monetary stock. This smoothing causes important information about the dynamic movements of the monetary stock to be lost. This may oer
more » ... ost. This may oer at least a partial explanation of why so many studies nd that money has little economic relevance. To that end, we will conclude the paper by examining a reduced form backward looking IS equation to determine whether monetary aggregates contain information about real GDP gap. This paper diers from previous work in that it focuses on smoothing of the monetary stock data caused by the use of simple sum methodology, where the previous work focuses on the bias exhibited by simple sum monetary aggregates.
doi:10.1108/s0731-9053(2009)0000024013 fatcat:ynpg7xs26zc3zkhe353ywhz5gu