Aggregating Money Demand in Europe with a Divisia Index
AbstractProponents 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 InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 392.
Date of creation: Nov 1996
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Divisia index; money demand; European Monetary Union;
Find related papers by JEL classification:
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
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