A Divisia user cost of money for emerging economies

Please cite the paper as:
John Nana Francois, Ryan S. Mattson, (2018), A Divisia user cost of money for emerging economies, World Economics Association (WEA) Conferences, No. 1 2018, Monetary Policy after the Global Crisis, 19th February to 2nd April, 2018


A growing literature on Divisia monetary aggregation focuses on emerging economies. Sizeable proportions of the populations of these economies face financial accessibility and wealth constraints. We propose a modified user-cost of money in an economic environment where a fraction of consumers are wealth-constrained. The derived user-cost is a weighted average of the subjective user-costs of constrained and unconstrained agent. Our user-cost is consistent with the canonical Barnett (1978) and Barnett (2000) user cost when all agents are not wealth-constrained but accounts for an additional “social” opportunity cost when a fraction of consumers do not have access to wealth.

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