Construction of an Estimated Domestic Monetary Base Using New Estimates of Foreign Holdings of US Currency
This paper has been replaced with working paper 2000-002. This paper provides a consistent, monthly measure of the amount of the U.S. adjusted monetary base that is domestically held, and of the amount held abroad. Most macroeconomic models that address the role of outside money as a determinant of the economy's aggregate price level are closed economy models, suggesting a need to accurately measure the domestic monetary base. To do so, this paper presents a new method to estimate the amount of US currency held abroad, a method which exploits data on the processing of currency at the Federal Reserve's 37 cash offices. Estimates of domestic monetary aggregates, including domestic M1 and M2, also are produced. Relative to previous studies and estimates currently included in the Flow of Funds and the National Income and Product Accounts, our estimates suggest larger currency exports during the 1970s and early 1980s, and a sharp slowing of exports since 1995.