Historically, attempts to solve the liquidity puzzle focus on narrowly defined monetary aggregates, such as non-borrowed reserves, the monetary base, or M1. Many of these efforts fail to find a short-term negative correlation between interest rates and monetary policy innovations. More recent...

The currency equivalent index measures the discounted economic capital stock of money producing the monetary service flow, but does so under assumptions that cause downward bias. We propose an extension that will correct for a significant amount of this bias.