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Aggregation Bias in Estimating European Money Demand Functions

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Author Info

  • Wesche, Katrin

Abstract

Recently, money demand functions for a group of European countries have been estimated and generally have been found to perform better than most national money demand functions. While parameter equality is a sufficient condition for valid aggregation of linear equations, in money demand estimation often log-linear specifications are used, so that aggregation is in effect nonlinear. This makes the relation between the aggregate and the individual equations more complicated. To investigate if the conditions for unbiased linear aggregation are also valid for logarithmic aggregation, a simulation study is performed.

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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 393.

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Length: pages
Date of creation: Nov 1996
Date of revision:
Handle: RePEc:bon:bonsfb:393

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

Related research

Keywords: Demand for Money; Nonlinear Aggregation; European monetary Union;

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References

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  1. Knox Lovell, C. A., 1973. "A note on aggregation bias and loss," Journal of Econometrics, Elsevier, vol. 1(3), pages 301-311, October.
  2. Ivo Arnold, 1994. "The myth of a stable European money demand," Open Economies Review, Springer, vol. 5(3), pages 249-259, July.
  3. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  4. Carlo Monticelli & Marc-Olivier Strauss-Kahn, 1992. "European integration and the demand for broad money," BIS Working Papers 18, Bank for International Settlements.
  5. Martin Falk & Norbert Funke, 1995. "The stability of money demand in Germany and in the EMS: Impact of German unification," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 131(3), pages 470-488, September.
  6. Lee, Kevin C & Pesaran, M Hashem & Pierse, Richard G, 1990. "Testing for Aggregation Bias in Linear Models," Economic Journal, Royal Economic Society, vol. 100(400), pages 137-50, Supplemen.
  7. repec:fth:banfra:16 is not listed on IDEAS
  8. M. H. Pesaran & R. G. Pierse & M. S. Kumar, 1988. "Econometric Analysis of Aggregation in the Context of Linear Prediction Models," UCLA Economics Working Papers 485, UCLA Department of Economics.
  9. Paul R. Masson & Marcel Cassard & Timothy D. Lane, 1994. "ERM Money Supplies and the Transition to EMU," IMF Working Papers 94/1, International Monetary Fund.
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Cited by:
  1. Batini, Nicoletta, 2002. "Euro area inflation persistence," Working Paper Series 0201, European Central Bank.
  2. Wesche, Katrin, 1995. "The Stability of European Money Demand: An Investigation of M3H," Discussion Paper Serie B 337, University of Bonn, Germany.

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