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Aggregating Money Demand in Europe with a Divisia Index

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  • Wesche, Katrin

Abstract

Proponents of an aggregation theoretic approach to money demand argue that simple-sum measures do not capture the theoretical notion of money. This is especially true for broad monetary aggregates, which include components held for savings motives that are only imperfect substitutes for transactions media. Simple-sum monetary aggregates thus are not consistent with microeconomic theory. Monetary aggregation in Europe using indices for monetary services seems attractive because these indices can account for the imperfect substitutability between different currencies. In this paper the aggregation theoretic framework is applied to money holdings of European residents and the resulting index is compared to simple-sum M3.

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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 392.

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Length: pages
Date of creation: Nov 1996
Date of revision:
Handle: RePEc:bon:bonsfb:392

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Keywords: Divisia index; money demand; European Monetary Union;

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