Monetary aggregation: Concept, critics and modern alternatives

Abstract

The concept of monetary aggregates has always followed changes in monetary policy. Its development reflects the victories and mistakes of monetary authorities. Although they played the roles of operational and intermediate targets in the past, today they are used in the analysis of the banking sector and financial stability. Some economists believe that broad monetary aggregates such as Divisia help explain macroeconomic dynamics and should be included in the central bank’s interest rate decision rules. In addition, functional monetary aggregates are proposed as an alternative, behind which there are complex calculations. In the near future, the introduction of central bank digital currencies must lead to a redefinition of the monetary base and simple aggregates.