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Divisia Aggregates: A Literature Review and an Application to the Demand for Money in Paraguay

Author

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  • Luis Molinas Sosa

    (Central Bank of Paraguay)

Abstract

Divisia's monetary aggregates have been shown to outperform the simple sum monetary aggregates used by policymakers in the vast majority of the world's central banks. Since Barnett (1978, 1980) derived the user cost price and produced the correct theoretical value of the aggregation, Divisia's monetary aggregates have helped to solve some of the profession's most difficult problems. Therefore, this study calculates Divisia's monetary aggregates for Paraguay in order to examine its performance against simple-sum monetary aggregates in estimating the demand for money. The results suggest that Divisia's monetary aggregates are superior to the simple sum aggregates in estimating the demand for money.

Suggested Citation

  • Luis Molinas Sosa, 2021. "Divisia Aggregates: A Literature Review and an Application to the Demand for Money in Paraguay," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(77), pages 33-49, August.
    • Handle: RePEc:bcr:ensayo:v:1:y:2021:i:77:p:33-49
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    More about this item

    Keywords

    Divisia; interest rates; international finance; monetary policy; money demand;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F30 - International Economics - - International Finance - - - General

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