May 1990
Federal Reserve Bank of Dallas

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A New Monetary Aggregate
Evan F. Koenig and Thomas B. Fomby

During the past two decades, financial innovations have proceeded at a rapid pace. These innovations have altered the liquidity of some assets relative to that of others. As a result, traditional measures of the money supply may have become less reliable as measures of household liquidity. Even sophisticated measures of the money supply, such as the Divisia monetary aggregates, do not adequately adjust for the effects of changes in the payments technology.

Koenig and Fomby propose a measure of the money supply that avoids some of the shortcomings of existing monetary aggregates. The behavior of the new measure suggests that monetary policy during the late 1970s and early 1980s was substantially less expansionary than the corresponding traditional and Divisia aggregates might lead one to believe.

Reducing U.S. Oil-Import Dependence: A Tariff, Subsidy, or Gasoline Tax?
Mine K. Yucel and Carol Dahl

Low oil prices and rising oil imports have caused growing concern about U.S. vulnerability to oil-supply shocks. Mine K. Yucel and Carol Dahl devise a measure of vulnerability and use it to compare three policies that have been proposed to reduce U.S. vulnerability to oil-supply disruptions: a 25-percent oil-import tariff, a $5-per-barrel subsidy to domestic oil producers, and an increase in the gasoline tax from 9 cents to 25 cents per gallon.

Yucel and Dahl find that the tariff would make the United States less vulnerable to disruptions. By increasing both consumer and producer prices, the tariff lowers consumption while encouraging domestic production. The increased gasoline tax could either lower or raise vulnerability. If domestic supply is not very responsive to price changes, the gasoline tax increases vulnerability. If domestic supply is responsive to price changes, the gasoline tax reduces vulnerability. The subsidy encourages increased consumption and production, leading to a faster depletion of the resource base. Hence, the subsidy would make the United States more vulnerable to oil-supply shocks.