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The Substitutability of Financial Assets in the U.K. and the Implications for Monetary Aggregation

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  • Drake, Leigh

Abstract

This paper assesses empirically the degree of substitutability between capital certain liquid financial assets in the United Kingdom by employing consumer demand theory. Translog share equations are specified and estimated for the various monetary assets. Expenditure elasticities, own and cross-price elasticities, and elasticities of substitution are then derived from the parameter estimates and these measures are used to provide information as to the appropriate asset components to be included in monetary aggregates. Finally, Divisia aggregation is employed to construct a monetary aggregate that is consistent with economic aggregation theory and the performance of this Divisia aggregate is then compared to simple sum monetary aggregates. Copyright 1992 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Drake, Leigh, 1992. "The Substitutability of Financial Assets in the U.K. and the Implications for Monetary Aggregation," The Manchester School of Economic & Social Studies, University of Manchester, vol. 60(3), pages 221-248, September.
    • Handle: RePEc:bla:manch2:v:60:y:1992:i:3:p:221-48
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    Cited by:

    1. Barnett, William A. & Chauvet, Marcelle, 2008. "The End of the Great Moderation: “We told you so.”," MPRA Paper 11642, University Library of Munich, Germany.
    2. William A. Barnett & Marcelle Chauvet, 2011. "International Financial Aggregation and Index Number Theory: A Chronological Half-Century Empirical Overview," World Scientific Book Chapters, in: Financial Aggregation And Index Number Theory, chapter 1, pages 1-51, World Scientific Publishing Co. Pte. Ltd..
    3. Barnett, William A. & Chauvet, Marcelle, 2011. "How better monetary statistics could have signaled the financial crisis," Journal of Econometrics, Elsevier, vol. 161(1), pages 6-23, March.
    4. Drake, Leigh & Fleissig, Adrian R., 2010. "Substitution between monetary assets and consumer goods: New evidence on the monetary transmission mechanism," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2811-2821, November.

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