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November/December 1991, 
Vol. 73, No. 6
Posted 1991-11-01

Alternative Measures of the Monetary Base: What Are the Differences and Are They Important?

by Michelle R. Garfinkel and Daniel L. Thornton

Michelle R. Garfinkel and Daniel L. Thornton explore the differences in two measures of the adjusted monetary base, one constructed by this Bank, the other constructed by the Federal Reserve Board. Noting that these two indicators of monetary policy can and frequently do give conflicting impressions of monetary policy, the authors briefly review the basic idea behind the adjustment for reserve requirement changes. They then discuss differences in the construction of the two measures and go on to explore the importance of these differences empirically. Because the differences in their construction are arbitrary and technical in nature, there is little reason to prefer one measure over the other. The authors suggest that, when the difference is important, the measure that appears to perform best for the problem at hand should be used.