In this article by Professor Steve H. Hanke from Johns Hopkins University, Professor Hanke uses CFS Divisia measures to throw light on the economy. From January 2003 until the collapse of Lehman, the exponential annual trend growth rate for Divisia M4 was 8.79%. Since the Lehman collapse in September 2008, the exponential annual trend growth rate for Divisia M4 has been 0.77%. The decline can be attributed to a drop in bank money. Based on the anemic annual Divisia M4 growth rate of 2.6%, Hanke forecasts that the Fed will be forced to keep interest rates at the lower bound for longer than expected – and perhaps even into 2016.
For those looking to gain an intuitive understanding of Divisia measures and how they differ from the Fed’s simple sum measures, this article is well worth reading.
Read “Don’t Be Fooled by Taper Talk” by Steve H. Hanke.