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Aggregate vs Disaggregate Data Analysis - A Paradox in the Estimation of Money Demand Function of Japan Under the Low Interest Rate Policy

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Author Info
Cheng Hsiao (Department of Economics, University of Southern California)
Yan Shen (Department of Economics, University of Southern California)
Hiroshi Fujiki (Institute of Monetary and Economic Studies, Bank of Japan)

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Abstract

We investigate the issue of whether there was a stable money demand function for Japan in 1990's using both aggregate and disaggregate time series data. The aggregate data appears to support the contention that there was no stable money demand function. The disaggregate data shows that there was a stable money demand function. Neither was there any indication of the presence of liquidity trap. Possible sources of discrepancy are explored and the diametrically opposite results between the aggregate and disaggregate analysis are attributed to the neglect of heterogeneity among micro units. We also conduct simulation analysis to highlight the importance of paying proper attention to heterogeneity among micro units for macro policy analysis and prediction.

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Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number A4-1.

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Date of creation: Jan 2002
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Handle: RePEc:cpd:pd2002:a4-1

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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.)

  1. Hiroshi Fujiki & Cheng Hsiao, 2008. "Aggregate and Household Demand for Money: Evidence from Public Opinion Survey on Household Financial Assets and Liabilities," IMES Discussion Paper Series 08-E-17, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
  2. Fushang Liu & Kajal Lahiri, 2006. "Modelling multi-period inflation uncertainty using a panel of density forecasts," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(8), pages 1199-1219. [Downloadable!]
  3. Cheng Hsiao, 2005. "Longitudinal Data Analysis," Economic Growth centre Working Paper Series 0510, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre. [Downloadable!]
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