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Measuring the Economic Stock of Money

Kelly, Logan (2007): Measuring the Economic Stock of Money.

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Abstract

Aggregation theoretic measures of the economic stock of money (ESM) have been criticized for their dependence on future expectations. I answer some of those objections by using several forecasting methods to generate the expectations needed for calculating the ESM. I find that targeted factor model forecasting improves the accuracy of the measurement of the ESM but also that measurement of the ESM is robust to assumptions about future expectation. These findings suggest that concerns about the dependency of theoretical monetary stock aggregates on forecasted future expectations may have been overstated.

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