This paper has two goals. The first goal is to examine the degree of substitutability between various bank and non‐bank assets and a reference asset using A ustralian quarterly data for the sample period 1969(4)‐1983(2). Particular attention is directed towards quantifying the degree of liquidity of financial innovations introduced recently into the A ustralian financial sector. The second goal is to construct a weighted monetary aggregate series derived. explicitly from microeconomic consumer demand theory. While both the bank innovations and building society deposits are close substitutes for currency, the aggregation restrictions implicit in the Australian monetary aggregates beyond Ml are viola