Recent research into the construction of monetary aggregates
(see the Barnett 2nd Serletis collected volume for the United States) attributes the breakdown in demand for money functions during the 1980s to the use of conventional official simple sum aggregates.
(9) It involves five main elements: 1) the public announcement of medium-term numerical targets for inflation; 2) an institutional commitment to price stability as the primary goal of monetary policy, to which other goals are subordinated; 3) an information inclusive strategy in which many variables, and not just monetary aggregates
or the exchange rate, are used for deciding the setting of policy instruments; 4) increased transparency of the monetary policy strategy through communication with the public and the markets about the plans, objectives, and decisions of the monetary authorities; and 5) increased accountability of the central bank for attaining its inflation objectives.
This scenario is especially relevant in today's economic environment, where money growth as measured by some monetary aggregates
has been relatively strong over the past couple of years.
As in previous years, the Committee interpreted the ranges for the broader monetary aggregates
as benchmarks for what money growth would be under conditions of price stability and sustainable economic growth, assuming historically typical velocity behavior.
Nakahara said it is necessary "to demonstrate as clearly as possible the bank's critical view of the condition of the economy," adding he considered it appropriate to slightly lower the level of the unsecured overnight call money rate "to give what boost possible to monetary aggregates
The paper reports little evidence in support of the superiority of the Divisia monetary aggregates
. Both types of measure produce a stable demand for money and perform satisfactorily in post-sample stability tests, although the Divisia measure appears to perform marginally better on conventional statistical criteria.
Although the targeting of monetary aggregates
has many important advantages in principle, in practice these advantages come about only if the monetary aggregates
have a highly predictable relationship with nominal income.
The admissible collections of assets are then combined using Divisia aggregation in order to produce monetary aggregates
which are consistent with economic aggregation theory.
It is now widely acknowledged that financial markets deregulation and financial innovations have significantly altered the relationship between monetary aggregates
and macroeconomic goals such as output and price stability.
The first four essays consist of a series of studies on the usefulness of monetary aggregates
as intermediate targets or information variables.
It starts by using open-market operations in an effort to achieve "operating targets," which are the values of bank reserves and the federal funds rate that it believes are consistent with achieving the values of "intermediate targets" (e.g., growth in the monetary aggregates
), which in turn are deemed consistent with achieving the desired ultimate effects on inflation and economic activity.
This volume, their counterpart to Friedman and Schwartz's Monetary Statistics of the United States (1970), presents new estimates of monetary aggregates
and their components for the period 1870-1982 and sets out their sources and methods of construction.