Simple Sum and Divisia Monetary Aggregates for Iran

Money stock is a key macroeconomic variable which plays a principal role in monetary policy. Following the case of Missing Money in early 1970s and instability of money demand function, economists came up with the inherent weaknesses that simple sum aggregation holds. By introducing and developing User Cost of Money, Barnett (1978) paved the way to employ Divisia Index to calculate the money stock. This paper deals with the Divisia index from theoretical point of view, then applies it to measure money stock in Iran for the period (1367:1- 1384:2). Quarterly money stock figures obtained by using Divisia index are then compared with that of simple sum index, which is the basic method to obtain money stock in Iran.