The currency equivalent index measures the discounted economic capital stock of money producing the monetary service flow, but does so under assumptions that cause downward bias. We propose an extension that will correct for a significant amount of this bias.

We identify the effects of monetary policy shocks on macroeconomic variables in VARs using the Divisia M4 measure of money as the policy indicator variable. We obtain theoretically sensible responses—whether or not a commodity price index is included. Thus, we eliminate the well-known...