A Divisia user cost of money for emerging economies

monetarypolicyconferenceadmin — Fri, 09 Feb 2018 16:15:48 +0000

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.

Money demand, Divisia aggregate and share price volatility in the UK

weaadmin — Fri, 09 Feb 2018 15:36:38 +0000

We investigate (i) the performance of the weighted monetary aggregate, Divisia, relative to its official Simple Sum counterpart in a money demand framework, and (ii) the impact of share prices and their volatility on these aggregates. We find that the Divisia aggregate shows more stability with monetary policy targets, such as output, than its counterpart, particularly during the financial crisis and beyond. We also find that the influence of share prices and their volatility on monetary aggregates have increased in the recent decades. We also uncover that as share prices increase, investors tend to increase their holdings of more savings oriented assets but they also switch from low interest yielding highly liquid assets into equities.

Divisia – Monetary Policy after the Global Crisis

A Divisia user cost of money for emerging economies

Money demand, Divisia aggregate and share price volatility in the UK