# The Barnett Critique

^{1}

^{2}

^{*}

## Definition

## 1. History

#### 1.1. A Competition

#### 1.2. Results of the Competition

## 2. Reconsideration of the Competition Results

## 3. The High Road versus the Low Road

#### 3.1. Implications of the Low Road

#### 3.2. Policy Errors

## 4. Index Number Theory

#### The Divisia Monetary Aggregates

_{t}is the risk-free rate of return on a completely illiquid asset (benchmark rate on pure capital) during period t. The Divisia index in growth rate form in continuous time is

## 5. Credit-Card Augmented Divisia Monetary Aggregates

#### 5.1. Demand-Side Formula

**m**

_{t},

**c**

_{t}), is the share-weighted average of the growth rates of the components. The credit card quantities to include in the augmented Divisia index formula are the monthly credit card transactions volumes, not the credit card balances, which include rotating balances from previous period transactions.

#### 5.2. Supply Side

## 6. Recent Literature

## 7. Conclusions

## Author Contributions

## Funding

## Conflicts of Interest

## Entry Link on the Encyclopedia Platform

## References

- Chrystal, A.K.; MacDonald, R. Empirical Evidence on the Recent Behaviour and Usefulness of Simple-Sum and Weighted Measures of the Money Stock. St. Louis Fed. Reserve Bank Rev.
**1994**, 76, 73–109. [Google Scholar] - Anderson, L.C.; Jordan, J.L. Monetary and Fiscal Actions: A Test of Their Relative Importance in Economic Stabilization. St. Louis Fed. Reserve Bank Rev.
**1968**, 50, 11–23. [Google Scholar] [CrossRef] - Barnett, W.A. Economic Monetary Aggregates: An Application of Aggregation and Index Number Theory. J. Econom.
**1980**, 14, 11–48. [Google Scholar] [CrossRef] - Belongia, M.T.; Ireland, P.N. The Barnett Critique after Three Decades: A New Keynesian Analysis. J. Econom.
**2014**, 183, 5–21. [Google Scholar] [CrossRef] - Barnett, W.A.; Serletis, A. The Theory of Monetary Aggregation; North Holland: Amsterdam, The Netherlands, 2000. [Google Scholar]
- Barnett, W.A.; Chauvet, M. Financial Aggregation and Index Number Theory; World Scientific: Singapore, 2011. [Google Scholar]
- Barnett, W.A. Getting It Wrong: How Faulty Monetary Statistics Undermine the Fed, the Financial System, and the Economy; MIT Press: Cambridge, MA, USA, 2012. [Google Scholar]
- Barnett, W.A. Which Road Leads to Stable Money Demand? Econ. J.
**1997**, 107, 1171–1185. [Google Scholar] [CrossRef] - Barnett, W.A. Recent Monetary Policy and the Divisia Monetary Aggregates. Am. Stat.
**1984**, 38, 162–172. [Google Scholar] - Divisia, F. L’indice monetaire et la theorie de la monnaie. Rev. d’Economie Polit.
**1925**, 39, 842–864. [Google Scholar] - Tornqvist, L. The Bank of Finland’s Consumption Price Index. Bank Finl. Rev.
**1936**, 10, 1–8. [Google Scholar] - Theil, H. Economics and Information Theory; North Holland: Amsterdam, The Netherlands, 1967. [Google Scholar]
- Barnett, W.A.; Su, L. Joint Aggregation over Money and Credit Card Services under Risk. Econ. Bull.
**2016**, 36, 2301–2310. [Google Scholar] - Diewert, E. Exact and Superlative Index Numbers. J. Econom.
**1976**, 4, 115–145. [Google Scholar] [CrossRef] - Barnett, W.A. The User Cost of Money. Econ. Lett.
**1978**, 1, 145–149. [Google Scholar] [CrossRef] - Barnett, W.A.; Offenbacher, E.K.; Spindt, P.A. The New Divisia Monetary Aggregates. J. Political Econ.
**1984**, 92, 1049–1085. [Google Scholar] [CrossRef] - Barnett, W.A.; Su, L. Financial Firm Production of Inside Monetary and Credit Card Services: An Aggregation Theoretic Approach. Macroecon. Dyn.
**2018**, 24, 1–31. [Google Scholar] [CrossRef][Green Version] - Keating, J.W.; Smith, A.L. The optimal monetary instrument and the (mis)use of causality tests. J. Financ. Stab.
**2019**, 42, 90–99. [Google Scholar] [CrossRef] - Drake, L.; Fleissig, A. A Note on the Policy Implications of Using Divisia Consumption and Monetary Aggregates. Macroecon. Dyn.
**2008**, 12, 132–149. [Google Scholar] [CrossRef] - Fisher, P.; Hudson, S.; Pradhan, M. Divisia Indices for Money: An Appraisal of Theory and Practice. 1993. Available online: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/1993/divisia-indices-for-money-an-appraisal-of-theory-and-practice.pdf (accessed on 7 September 2021).
- Barnett, W.A.; Chauvet, M.; Leiva-Leon, D. Real-time Nowcasting of Nominal GDP with Structural Breaks. J. Econom.
**2016**, 191, 312–324. [Google Scholar] [CrossRef] - Shunk, D.L. The Relative Forecasting Performance of the Divisia and Simple Sum Monetary Aggregates. J. Money Credit Bank.
**2001**, 33, 272–283. [Google Scholar] [CrossRef] - Ellington, M. The Case for Divisia Monetary Statistics: A Bayesian Time-Varying Approach. J. Econ. Dyn. Control
**2018**, 96, 73–109. [Google Scholar] [CrossRef] - Liu, J.; Serletis, A. Credit Cards, the Demand for Money, and Monetary Aggregation. Macroecon. Dyn.
**2021**, in press. [Google Scholar] [CrossRef]

**Figure 1.**Monthly percentage growth rates of simple sum M2 and Divisia M4. Source: Federal Reserve Economic Data (Simple sum M2), Center for Financial Stability (Divisia M4).

Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. |

© 2021 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).

## Share and Cite

**MDPI and ACS Style**

Barnett, W.A.; Park, H.; Park, S. The Barnett Critique. *Encyclopedia* **2021**, *1*, 964-973.
https://doi.org/10.3390/encyclopedia1030073

**AMA Style**

Barnett WA, Park H, Park S. The Barnett Critique. *Encyclopedia*. 2021; 1(3):964-973.
https://doi.org/10.3390/encyclopedia1030073

**Chicago/Turabian Style**

Barnett, William A., Hyun Park, and Sohee Park. 2021. "The Barnett Critique" *Encyclopedia* 1, no. 3: 964-973.
https://doi.org/10.3390/encyclopedia1030073