The Information Content of Alternative Monetary Aggregate: Simple-Sum Versus Divisia Money in Selected Asian Countries

Abstract

The use of Divisia monetary aggregate has been proposed in the economic literature to take into account the different degrees of liquidity of the interest-bearing financial assets included in defining ¡®money¡¯. Despite the theoretical implications of the Divisia approach as an appropriate measurement of monetary services, the investigation has been mostly limited to developed countries. In this paper, the approach is applied to Asian monetary aggregates; the performance of the Divisia monetary aggregates together with its counterpart, the conventional Simple-sum aggregates, were then tested for their information content about national income using Granger-causality technique. Our result suggests that there is a role for Divisia aggregate as intermediate indicator for policy purposes in the ¡®deregulated¡¯ Asian economies.