TY  - JOUR
AU  - Stock,James H.
AU  - Feldstein,Martin
TI  - Measuring Money Growth When Financial Markets Are Changing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4888
PY  - 1994
Y2  - October 1994
UR  - http://www.nber.org/papers/w4888
L1  - http://www.nber.org/papers/w4888.pdf
N1  - Author contact info:
James H. Stock
Department of Economics
Harvard University
Littauer Center M27
Cambridge, MA 02138
Tel: 617/496-0502
Fax: 617/495-7730
E-Mail: James_Stock@harvard.edu

Martin S. Feldstein
President Emeritus
NBER
1050 Massachusetts Avenue
Cambridge, MA  02138-5398
Tel: 617/868-3905
Fax: 617/868-7194
E-Mail: msfeldst@nber.org
AB  - This paper examines the problem of measuring the growth of a monetary aggregate in the presence of innovations in financial markets and changes in the relationship between individual assets and output. We propose constructing a monetary aggregate so that it is a good leading indicator of nominal GDP; in general the weights on its components vary over time.  We investigate two specific procedures: one in which subaggregates discretely switch in and out, and one in which the growth of the aggregate is a time-varying weighted average of the growth of the subaggregates, where the weights follow a random walk.  These procedures are used to construct aggregates which potentially augment M2 with stock and/or bond mutual funds.  Over 1960-1991, the time-varying aggregates look much like M2, but during 1992-93 the time-varying aggregates outperform M2.
ER  -