A Empirical Comparison Study Of Divisia And Simple-Summed Monetary Aggregates In China

Since the ninth decade of the20th century, the currency total quantity of supply has showed a downward trend of relevance and effectiveness with economic indicators. The validation of currency policy system, which takes the money supply as the intermediate target, has been assaulted seriously. The debate about whether money supply is suitable for intermediate target of monetary policy or not becomes increasingly fierce. This paper argues that a precise definition and measurement of monetary aggregate is the premise condition for the money supply to be an effective intermediate target of monetary policy. There are two main methods to measure the monetary aggregates: simple-summed monetary aggregates and the weighting currency total quantity.The simple-summed monetary aggregates does not consider the "currency" differences between the assets and adds up all kinds of monetary assets directly. In other words, simple-summed monetary aggregates considers that each kind of monetary assets can be able to completely substitute under the condition of the opportunity cost is zero. However, in the real life, based on the different monetary function, economic activities hold different monetary assets, such as cash, demand deposits, time deposits and so on. Obviously, the simple-summed monetary aggregates presents theoretical defects. The weighting currency total quantity endows different assets with different weighting coefficient according to the "liquidity" or "currency", it avoids the theoretical defects of the simple sum monetary aggregates. In the late1970’s and early1980’s, American economist Barnett proposed a weighting currency total quantity——Divisia monetary index, which is possessed with highly theoretical and practical advantages. According to Divisia monetary index theory, currency assets are durable consumer goods which provide different liquidity services, and we can determine the weighting coefficient of each asset according to its liquidity services proportion.After more than30years of development, Divisia monetary index theory has gained fruitful research results, and obtained the certain application effect in overseas. Based on Divisia monetary index theory, the paper attempted to draw up our country’s Divisia monetary index form the first quarter of1993to the fourth quarter of2013. According to the results, combined with co-integration test, error correction model, granger causality test and multiple regression, the paper compared Divisia monetary aggregates with simple-summed monetary aggregates in the aspects of the money demand function, the correlation between monetary aggregates and economic indicators, and manageable of monetary aggregate. The research results show that Divisia monetary aggregates not only has stronger correlation with economic indicators, but also has better stability in short-term and long-term money demand. Therefore, the paper suggests China’s monetary authorities should put more attention to Divisia monetary index, try to draw up china Divisia monetary index, and regard it as an important macroeconomic indicators in China’s monetary policy system.