MONEY, OUTPUT, AND PRICES - EVIDENCE FROM A NEW MONETARY AGGREGATE

This article derives a new utility-based monetary aggregate, the curre ncy-equivalent (CE) aggregate. It equals the stock of currency that wo uld be required for households to obtain the liquidity services that t hey get from their entire collection of monetary assets. This aggregat e is derived from preferences assuming that these satisfy a separabili ty assumption in addition to satisfying the requirements for Divisia a ggregation. The resulting aggregate remains valid when asset character istics change and equals the sum of individuals' CE holdings. It also predicts output movements better than simple-sum aggregates such as M1 and M2.