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.

Monetary aggregates – Monetary Policy after the Global Crisis

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