Measuring Money Growth When Financial Markets are Changing
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CitationFeldstein, Martin, and James H. Stock. 1996. Measuring money growth when financial markets are changing. Journal of Monetary Economics 37(1): 3-27.
AbstractThis article considers constructing monetary aggregates in the presence of financial market innovations and changes in the relationship between individual assets and output. We propose two procedures for constructing a monetary aggregate with the objective of providing a reliable monetary leading indicator of nominal GDP. In the first, subaggregates discretely switch in and out; in the second, the aggregate's growth is a time-varying weighted average of the growth of the subaggregates, where the weights follow a multivariate random walk. These procedures are used to examine augmenting M2 with stock and/or bond mutual funds. The alternative aggregates are broadly similar to M2, but during 1992–1993 they outperform M2.
Citable link to this pagehttp://nrs.harvard.edu/urn-3:HUL.InstRepos:2799053
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