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September/October 1991, 
Vol. 73, No. 5
Posted 1991-09-01

Divisia Monetary Services Indexes for Switzerland: Are They Useful for Monetary Targeting?

by Piyu Yue and Robert Fluri

Piyu Yue and Robert Fluri derive alternative monetary aggregates for Switzerland that are based on economic aggregation theory, Divisia M1 and Divisia M2. Noting that the historical relationship between the Swiss National Bank’s principal policy instrument, the monetary base, and inflation appears to have broken down in the 1980s, they compare the performance of their two new aggregates and simple-sum M1 and M2 in explaining Swiss inflation. They find that Divisia and simple-sum M2 perform somewhat better than the M1 aggregates; however, their evidence suggests that simple-sum M2 cannot be controlled. They conclude that simple-sum M2 is unlikely to be an adequate substitute for the monetary base for policy purposes, but that the other aggregates are potentially worthy of further investigation.