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CFS Inside Money Supply for December
(Released January 29, 2024)

The broadest measure of inside money calculated by the Center for Financial Stability, including credit cards but excluding currency and Treasuries (DM4AI-), declined by 1.4% in December 2023, on a year-over-year basis.  

Download Data in Excel

Credit Card-Augmented Divisia

Introduction to the Credit Card-Augmented Divisia Inside Money Aggregates

The History

The original CFS Divisia monetary aggregates measure demand-side monetary services, using the economic aggregation and index number theory developed by Barnett (1980). On the demand side, there is no reason to differentiate among inside money, outside money, regulated services, or shadow banking services. Demanders consume liquidity services supplied by all relevant sources. But on the supply side, the manner in which the monetary services are produced is highly relevant to the transmission mechanism of monetary policy and to the indicator value of the resulting service flows. Long ago, Milton Friedman (1960) had proposed an all outside money economy to assure tight control by the central bank, but the role of privately produced monetary services has been growing rapidly since then. In recent decades transaction and liquidity services have been augmented dramatically by the growth of privately supplied unregulated monetary services from bank-supplied credit cards and from the services provided by unregulated shadow banking.

These developments had been foretold long ago by the books of Fisher (1961), Friedman and Schwartz (1963), Gurley and Shaw (1960), and Pesek and Saving (1967), as well as the published papers of Tobin (1963), Johnson (1969), Meltzer (1969), and Calvalcanti and Wallace (1996), who emphasized the need to distinguish between outside money and privately supplied inside money. The value added now supplied to the economy by private production of liquidity services is formidable and is undervalued in GDP data. Macroeconomic models and monetary policies that ignore the supply of inside money to the economy are overlooking the services provided to the economy by private financial firms, including their banking and shadow banking services.

The importance of distinguishing between inside money and outside money and their roles in the transmission mechanism of policy were clearly understood by the early Shadow Open Market Committee, when founded by Brunner and Meltzer (1967,1990), and also by the St. Louis Federal Reserve Bank. They computed inside and outside money by the Federal Reserve’s accounting conventions. Outside money was measured by the monetary base, as supplied by the St. Louis Federal Reserve Bank, and inside money was computed by subtracting outside money from the Federal Reserve’s official simple-sum monetary aggregates. But as money markets became more sophisticated and many monetary assets began yielding interest, the accounting approach to computing inside and outside money became less and less relevant.

The Theory

That approach has no foundations in microeconomic theory and makes the unjustifiable implicit assumption of perfect substitutability among competing sources of inside money services. Those implicit assumptions induced the Federal Reserve to discontinue its two broadest aggregates, M3 and L, which excessively weighted shadow banking services. The remaining narrower Federal Reserve aggregates go to the opposite extreme by giving no weight at all to money market securities, such as negotiable bank certificates of deposit, or to shadow banking, except for money market funds. In addition, inclusion of credit cards in simple-sum monetary aggregation is impossible, since accounting conventions do not permit adding liabilities to assets.

But microeconomic aggregation theory can jointly aggregate over service flows of assets, such as monetary assets, and liabilities, such as credit cards. As shown by Barnett and Su (2017b), the conventional approach to separating inside from outside money would recently produce negative values for inside money, thereby implying that privately produced inside money not only provides no value added to the economy, but is a net cost to the economy, inconsistent with the existence of inside money production in the economy in equilibrium. For obvious reasons, the conventional accounting approach to measuring inside and outside money has become disreputable and rarely appears in recent published papers. However, Barnett and Su (2017b) have derived the supply side neoclassical microeconomic theory of production of inside money services, including produced credit card services and shadow banking services. The resulting aggregator function, within the financial firm production technology, can be tracked with high accuracy by a Divisia aggregate having user cost pricing of components. See Barnett and Su (2017b, equation 32).

The Components

The primary differences between the supply side measure and the CFS demand side Divisia monetary aggregates is the supply side’s inclusion of credit card services and exclusion of currency and Treasury bills. Although banks use currency as excess reserves, those excess reserves are factors of production to banks, not produced outputs. Similarly, Treasury bills are not produced by the work of private firms. There also is a difference between the demand side and the supply side user cost formula for monetary assets, because of the existence of required reserves, producing an implicit tax on banks. But in recent year, that tax has been nearly zero, because of sweeps, low interest rates, and Federal Reserve payment of interest on reserves.

The Center for Financial Stability supplies its Divisia inside money aggregates at seven levels of aggregation, DM1, DMZM, DM2M, DM2, DALL, DM3, and DM4-. All of the inside money aggregates are augmented by inclusion of the services of credit cards. The derived user cost price of credit card services reflects the fact that credit cards provide a unique service, not supplied by monetary assets --- the service of deferred payment. See Barnett and Su (2017b, equation 7a). On the demand side, the CFS DM4- and DM4 Divisia aggregates differ only by the inclusion of Treasury bills in DM4. Since Treasury bills are not privately produced inside money, there is no supply side inside-money version of DM4. The broadest CFS Divisia inside money aggregate is therefore DM4-. Moving from DM1 to the higher levels of aggregation incorporates increasing amounts of shadow banking and negotiable money-market security liquidity services, properly weighted.

Paradoxically, the Federal Reserve includes highly illiquid non-negotiable certificates of deposit in M2, but not negotiable bank certificates of deposit, which are in the CFS’s broader aggregates. We consider the broadest inside money aggregate to be the potentially most informative. Although the CFS supplies its augmented inside money aggregates at all seven levels of aggregation for the benefit of researchers, the CFS plans to include only the augmented inside-money DM4- aggregate in its monthly releases to the media.

Data Sources and Conclusion

The data sources used in producing the CFS credit card-augmented inside-money aggregates are documents in Barnett and Su (2017a) and Barnett, Mattson, and van den Noort (2013). Although inside money, computed by the conventional accounting method, has become seriously defective, Barnett and Su (2017b) have shown that the CFS credit-card-augmented Divisia inside-money aggregates correlate very well with nominal GDP and can serve the central purposes of inside money, long contemplated in the literature on monetary economics.

Download Divisia Data in Excel

Below are three versions of the Divisia calcuations. Each provides one workbook that contains three worksheets that include:

  • The broad Divisia Monetary Aggregates, including DM3, DM4-, and DM4 (Broad tab)
  • The narrower Divisia monetary aggregates (Narrow tab)
  • All user-cost price aggregates (User-Cost tab)
The CFS Divisia aggregates are normalized to equal 100 at their first observation.

Excel Files

Download the Theoretical Foundations Paper

Download Data Source Documentation

  • The document describing data sources for the original Divisia Index here.
  • The document describing data sources for the augmented Divisia here.


Barnett, W. A. (1980). "Economic Monetary Aggregates: An Application of Aggregation and Index Number Theory," Journal of Econometrics 14: 11-48. Reprinted in W. A. Barnett and A. Serletis (eds.), 2000, The Theory of Monetary Aggregation, North Holland, Amsterdam, chapter 1: 6-10.

Barnett, W. A. and L. Su (2017a). “Data Sources for the Credit-Card Augmented Divisia Monetary Aggregates,” in Fredj Jawadi (ed.), Banks and Risk Management, special issue of Research in International Business and Finance, Elsevier, Proceedings of Second International Paris Workshop in Financial Markets and Nonlinear Dynamics, vol 39, Part B, January: 899-910.

Barnett, W. A. and L Su (2017b). “Financial Firm Production of Inside Monetary and Credit Card Services: An Aggregation Theoretic Approach,” CFS working paper.

Barnett, W. A., M. J. Hinich, and W. E. Weber (1986). “The Regulatory Wedge between the Demand-Side and Supply-Side Aggregation-Theoretic Monetary Aggregates,” Journal of Econometrics 33: 165-185.

Barnett, W.A., J. Liu, R.S. Mattson, and J. van den Noort (2013). "The New CFS Divisia Monetary Aggregates: Design, Construction, and Data Sources," Open Economies Review 24: 101-124.

Barnett, W. A., M. Chauvet, D. Leiva-Leon, and L. Su (2016). “The Credit-Card-Services Augmented Divisia Monetary Aggregates,” University of Kansas Working Paper No. 201604.

Brunner, Karl and Allan H. Meltzer (1967). “The Meaning of Monetary Indicators. In G. Horwich (ed.), Monetary Process and Policy, Homewood, Ill: Richard Irwin.

Brunner, Karl and Allan H. Meltzer (1990). “Money Supply,” in B. M. Friedman and F. H. Hahn (eds.), Handbook of Monetary Economics, vol 1, Elsevier, Amsterdam.

Cagan, P. (1956). Determinants and Effects of Changes in Stock of Money, 1867-1960, New York: National Bureau of Economic Research.

Cavalcanti, Ricardo de O. and Neil Wallace (1996). “Inside and Outside Money as Alternative Media of Exchange,” Journal of Money, Credit, and Banking 931(3), August: 443-457.

Chari, V. V., Lawrence J. Christiano, and Martin Eichenbaum (1995). “Inside Money, Outside Money, and Short Term Interest Rates,” Journal of Money, Credit and Banking 27(4): 1354-1386.

Fisher, Irving (1961). The Theory of Interest, New York: Macmillan.

Fixler, Dennis and Kimberly Zieschang (2016a). “FISIM Accounting,” Working Paper No. WP01/2016, Centre for Efficiency and Productivity Analysis, University of Queensland.

Fixler, Dennis and Kimberly Zieschang (2016b). “Producing Liquidity,” Working Paper No. WP02/2016, Centre for Efficiency and Productivity Analysis, University of Queensland.

Friedman, Milton (1960), A Program for Monetary Stability, Fordham University Press, New York.

Friedman, Milton and A. J. Schwartz (1963), A Monetary History of the United States, 1867-1960. Princeton: Princeton University Press.

Gurley, John G. and Edward S. Shaw (1960). Money in a Theory of Finance. Brookings Institution, Washington, DC.

Johnson, H. G. (1969). “Inside Money, Outside Money, Income, Wealth, and Welfare in Monetary Theory,” Journal of Money, Credit and Banking, February: 30-45.

King, Robert G. and Charles I. Plosser (1987). “Nominal Surprises, Real Factors, and Propagation Mechanisms.” In William A. Barnett and Kenneth Singleton (eds.), New Approaches to Monetary Economics, Cambridge University Press, Cambridge, UK: 273-292.

Meltzer, Allan H. (1969). “Money, Intermediation, and Growth,” Journal of Economic Literature 7(1), March: 27-56.

Pesek, Boris and Thomas R. Saving (1967). Money, Wealth, and Economic Theory, New York.

Tobin, J. (1963). “Commercial Banks as Creators of Money.” In: Deane Carson (ed.), Banking and Monetary Studies, Homewood, Illinois: Richard D. Irwin.