Divisia money

Quarterly Bulletin 2005 Q1
Published on 14 March 2005

By Matthew Hancock of the Bank's Monetary Assessment and Strategy Division.

This article reviews the Bank's measure of Divisia money - a gauge of the money supply that gives greatest weight to those components most used in transactions - and explains some recent changes to its calculation. These changes aim to make the Bank's series more theoretically appealing and to make use of some recently developed statistics. Five improvements have been made. First, a new approach has been introduced to determine the benchmark interest rate. Second, new effective interest rate data have been incorporated. Third, the level of aggregation has been changed slightly. Fourth, non break-adjusted levels are now used as the denominator in the Divisia calculation. Finally, a series for aggregate Divisia excluding other financial corporations, and a set of monthly series, have been introduced. In this article we begin with a discussion of the purpose of Divisia money, then we set out the changes that have been made, and the motivation behind them. Throughout we describe the impact of the changes on the Bank's series.

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