Aggregation Bias in Estimating European Money Demand Functions

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Aggregation Bias in Estimating European Money Demand Functions

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Wesche, Katrin

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Katrin Assenmacher-Wesche

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

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Date of creation: Nov 1996
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Handle: RePEc:bon:bonsfb:393

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Find related papers by JEL classification:
E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Ivo Arnold, 1994. "The myth of a stable European money demand," Open Economies Review, Springer, vol. 5(3), pages 249-259, July. [Downloadable!] (restricted)
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. [Downloadable!]
Other versions:
- Pesaran, M Hashem & Pierse, Richard G & Kumar, Mohan S, 1989. "Econometric Analysis of Aggregation in the Context of Linear Prediction Models," Econometrica, Econometric Society, vol. 57(4), pages 861-88, July. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)
Timothy D. Lane & Paul R. Masson & Marcel Cassard, 1994. "ERM Money Supplies and the Transition to EMU," IMF Working Papers 94/1, International Monetary Fund.
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. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Nicoletta Batini, 2002. "Euro area inflation persistence," Working Paper Series 201, European Central Bank. [Downloadable!]
Other versions:
- Nicoletta Batini, 2006. "Euro area inflation persistence," Empirical Economics, Springer, vol. 31(4), pages 977-1002, November. [Downloadable!] (restricted)
Wesche, Katrin, 1995. "The Stability of European Money Demand: An Investigation of M3H," Discussion Paper Serie B 337, University of Bonn, Germany. [Downloadable!]
Other versions:
- Katrin Wesche, 1997. "The Stability of European Money Demand: An Investigation of M3H," Open Economies Review, Springer, vol. 8(4), pages 371-391, October. [Downloadable!] (restricted)

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