ABSTRACT
The most important contribution of Divisia monetary measurement is towards an appropriate indicator for monetary policy purposes. There are important developments in the financial system of the Asian countries that qualify for the rationale for the used of Divisia monetary aggregates. In 1980s, most developed countries abandoned their monetary targeting due to financial innovation which has made the relationship between money and income unpredictable. Interest rates on deposits were fully deregulated in Indonesia, the Philippines and Sri Lanka in the early 1980s. Since late 1970s and early 1980s, the Asian economies have witnessed a significant financial deepening and disintermediation in the financial system. Despite the theoretical implication of the Divisia approach as an appropriate measurement of monetary services, the investigation has been mostly limited to developed countries. It has been observed that there has been a lack of empirical research in determining the role of Divisia monetary aggregates in developing economies.
