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June/July 1985, 
Vol. 67, No. 6
Posted 1985-06-01

Are Weighted Monetary Aggregates Better Than Simple-Sum M1?

by Dallas S. Batten and Daniel L. Thornton

Dallas S. Batten and Daniel L. Thornton investigate the properties of two weighted monetary aggregates and compare these with the measure M1. Influencing economic activity is a central objective of monetary policy, so an important attribute for a monetary aggregate to possess is a close, predictable relationship with economic activity. The evidence, however, indicates that the relationship between the two weighted measures and economic activity, as measured by nominal GNP, has been no more predictable or less variable than the relationship between M1 and GNP. Consequently, these weighted aggregates do not demonstrate any apparent gain over M1 that can be exploited for monetary policy purposes.