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A Note On The Optimal Level Of Monetary Aggregation In The United Kingdom

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  • ELGER, C. THOMAS
  • JONES, BARRY E.
  • EDGERTON, DAVID L.
  • BINNER, JANE M.

Abstract

Weak separability is a key admissibility property in the Divisia approach to monetary aggregation. We test groups of U.K. household sector monetary assets for weak separability using new data underlying the Bank of England's benchmark revision of its household sector Divisia index. Nonparametric tests are used to identify four monetary asset groupings, which are weakly separable over all or almost all of the post-ERM period (1992:4–2005:1). We construct Divisia monetary aggregates for these four groupings and investigate their information content in two applications. The main findings are that Divisia money has direct effects on aggregate demand and that the growth rates of the nominal Divisia monetary aggregates Granger cause nominal output growth, but not inflation.

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  • Elger, C. Thomas & Jones, Barry E. & Edgerton, David L. & Binner, Jane M., 2008. "A Note On The Optimal Level Of Monetary Aggregation In The United Kingdom," Macroeconomic Dynamics, Cambridge University Press, vol. 12(1), pages 117-131, February.
    • Handle: RePEc:cup:macdyn:v:12:y:2008:i:01:p:117-131_06
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    Cited by:

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    3. Richard G. Anderson & Barry E. Jones, 2011. "A comprehensive revision of the U.S. monetary services (divisia) indexes," Review, Federal Reserve Bank of St. Louis, vol. 93(Sep), pages 325-360.
    4. Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram & Hjertstrand, Per, 2015. "Revealed preference tests for weak separability: An integer programming approach," Journal of Econometrics, Elsevier, vol. 186(1), pages 129-141.
    5. Binner, Jane M. & Bissoondeeal, Rakesh K. & Elger, C. Thomas & Jones, Barry E. & Mullineux, Andrew W., 2009. "Admissible monetary aggregates for the euro area," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 99-114, February.
    6. Hjertstrand, Per & Swofford, James L. & Whitney, Gerald A., 2020. "Testing for Weak Separability and Utility Maximization with Incomplete Adjustment," Working Paper Series 1327, Research Institute of Industrial Economics, revised 30 May 2023.
    7. Hjertstrand, Per & Swofford, James L. & Whitney, Gerald A., 2023. "Testing for Weak Separability and Utility Maximization with Incomplete Adjustment," Journal of Economic Dynamics and Control, Elsevier, vol. 152(C).
    8. Jane M. Binner & logan J. Kelly, 2017. "Modelling Money Shocks in a Small Open Economy: The Case of Taiwan," Manchester School, University of Manchester, vol. 85, pages 104-120, September.

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