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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

  • 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)

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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