Constructing Divisia monetary aggregates for Singapore

Barnett, William A. and Nguyen, Van H. (2021): Constructing Divisia monetary aggregates for Singapore.

Abstract

Since Barnett (1978) derived the user cost price of money, the economic theory of monetary services aggregation has been developed and extended into a field of its own with solid foundations in microeconomic theory. Divisia monetary aggregates have repeatedly been shown to be strictly preferred to their simple-sum counterparts, which have no competent foundations in microeconomic aggregation or index number theory. However, most central banks in the world, including that of Singapore, the Monetary Authority of Singapore (MAS), still report their monetary aggregates as simple summations. Recent DSGE macroeconomic models often ignore aggregate quantities of money as possible instruments or targets of monetary policy. In the case of a small open economy like Singapore’s, exchange rates are often targeted to achieve goals for inflation and output gap. See, e.g., McCallum (2006). Is that because quantities of money are irrelevant to economic activity? To examine the relevance of Divisia monetary aggregates in predicting real economy activity in Singapore, we construct monetary services indices for Singapore using the recent credit-card-augmented Divisia monetary aggregates formula. We produce those state-of-the-art monetary services indexes for Jan 1991 to Mar 2021. In future work, we plan to use our data to explore central bank policy in Singapore and to propose improvements in that policy. By making our data available to the public, we encourage others to do the same.

• Item Type: MPRA Paper
• Language: English
• Keywords: Divisia index, Divisia monetary aggregates, credit card augmented Divisia, open-economy macroeconomics, monetary policy analysis, Singapore
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E47 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

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