Divisia monetary aggregates for Russia: Money demand, GDP nowcasting and the price puzzle

The lack of developed financial markets and well-functioning transmission channels assigns monetary aggregates in emerging economies the potential role nominal anchor, intermediate target, or informational variable for policy. effectiveness this approach relies crucially on correct measurement money, which is not fulfilled by conventional index based simple sum assets. This paper calculates alternative Divisia Russia over period 1998–2019, account level liquidity a given asset assigning weights according to usefulness that transaction services. found follow markedly different growth pattern from sum, whereby deviations between two series are even more pronounced when foreign currency accounts included. We conduct three empirical exercises demonstrate advantages sum. confirms stability money demand function reflects portfolio shifts response changes opportunity cost money. Divisia-based GDP nowcasting performs better times turmoil than Lastly, mitigates price puzzle phenomenon relative measure. conclude would improve policy Russia.