Does it Matter How to Measure Aggregates? The Case of Monetary Transmission Mechanisms in the Euro Area
AbstractBeyer, Doornik and Hendry (2000, 2001) show analytically that three out of four aggregation methods yield problematic results when exchange rate shifts induce relative-price changes between individual countries and found the least problematic method to be the variable weight method of growth rates. This papers shows, however, that the latter is sensitive to the choice of base year when based on real GDP weights whereas not on nominal GDP weights. A comparison of aggregates calculated with different methods shows that the differences are tiny in absolute value but highly persistent. To investigate the impact on the cointegration properties in empirical modelling, the monetary model in Coenen & Vega (2001) based on fixed weights was re-estimated using flexible real and nominal GDP weights. In general, the results remained reasonably robust to the choice of aggregation method.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 08-07.
Length: 25 pages
Date of creation: Mar 2008
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aggregation; flexible weights; Eurowide money demand; cointegration;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-15 (All new papers)
- NEP-CBA-2008-03-15 (Central Banking)
- NEP-EEC-2008-03-15 (European Economics)
- NEP-MAC-2008-03-15 (Macroeconomics)
- NEP-MON-2008-03-15 (Monetary Economics)
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- Ralf Brüggemann & Jing Zeng, 2012. "Forecasting Euro-Area Macroeconomic Variables Using a Factor Model Approach for Backdating," Working Paper Series of the Department of Economics, University of Konstanz 2012-15, Department of Economics, University of Konstanz.
- Helmut Lütkepohl, 2010.
"Forecasting Aggregated Time Series Variables: A Survey,"
OECD Journal: Journal of Business Cycle Measurement and Analysis,
OECD Publishing,CIRET, vol. 2010(2), pages 1-26.
- Helmut Luetkepohl, 2009. "Forecasting Aggregated Time Series Variables: A Survey," Economics Working Papers ECO2009/17, European University Institute.
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