Financial innovation in the UK: new tier-adjusted household sector monetary services indexes

This study is the first of its kind to focus on the effect of interest-rate tiers on aggregate measures of the monetary services flow. We address the role and impact of measurement errors in building monetary index numbers directly. Using a unique data set obtained from Barclays Bank plc, we construct two adjusted UK household sector measures of the aggregate monetary services flow. These are compared to an unadjusted household sector measure in a cointegration money demand framework. Our estimation results reveal only minor differences across the different systems based on different measures of the monetary services flow. This lends support to the 'standard' practice adopted by the Bank of England to use a single rate.