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The demand for divisia money in a core monetary union

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  • Katrin Wesche

Abstract

Proponents of an aggregation theoretic approach to money demand argue that simple-sum measures do not capture the theoretical notion of money, especially for broad monetary aggregates. European monetary aggregation, which uses indices for monetary services, seems attractive because these indices can account for the imperfect substitutability between different currencies. In this article, Katrin Wesche applies the aggregation theoretic framework to money holdings of European residents and compares the resulting index to simple-sum M3. She concludes that the Divisia index of European monetary services may provide additional insight into money demand during the period of transition to monetary union.

Suggested Citation

  • Katrin Wesche, 1997. "The demand for divisia money in a core monetary union," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 51-60.
    • Handle: RePEc:fip:fedlrv:y:1997:i:sep:p:51-60
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    References listed on IDEAS

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    1. Masson,Paul R. & Taylor,Mark P. (ed.), 1993. "Policy Issues in the Operation of Currency Unions," Cambridge Books, Cambridge University Press, number 9780521434553.
    2. Richard G. Anderson & Barry E. Jones & Travis D. Nesmith, 1996. "Monetary aggregation theory and statistical index numbers," Working Papers 1996-007, Federal Reserve Bank of St. Louis.
    3. William A. Barnett, 2000. "The User Cost of Money," Contributions to Economic Analysis, in: The Theory of Monetary Aggregation, pages 6-10, Emerald Group Publishing Limited.
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    Cited by:

    1. Ivo Arnold, 2003. "A Regional Analysis of German Money Demand Around Reunification with Implications for EMU," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 30(1), pages 63-80, March.
    2. Yu, Qiao & Tsui, Albert K., 2000. "Monetary services and money demand in China," China Economic Review, Elsevier, vol. 11(2), pages 134-148, December.
    3. Bernd Hayo, 1999. "Estimating A European Demand For Money," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(3), pages 221-244, August.
    4. William A. Barnett, 2011. "Multilateral Aggregation-Theoretic Monetary Aggregation over Heterogeneous Countries," World Scientific Book Chapters, in: Financial Aggregation And Index Number Theory, chapter 6, pages 167-206, World Scientific Publishing Co. Pte. Ltd..
    5. Reimers, Hans-Eggert, 2002. "Analysing Divisia Aggregates for the Euro Area," Discussion Paper Series 1: Economic Studies 2002,13, Deutsche Bundesbank.
    6. Hans-Eggert Reimers, 2003. "Does Money Include Information for Output in the Euro Area?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 231-252, June.
    7. Stracca, Livio, 2001. "Does liquidity matter? Properties of a synthetic divisia monetary aggregate in the euro area," Working Paper Series 0079, European Central Bank.
    8. Reimers Hans-Eggert, 2003. "Does Money Include Information for Prices in the Euro Area? / Enthält Geld Informationen für die Preisentwicklung im Eurowährungsgebiet?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 223(5), pages 581-602, October.

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