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Does it Matter How to Measure Aggregates? The Case of Monetary Transmission Mechanisms in the Euro Area

  • Andreas Beyer

    (European Central Bank)

  • Katarina Juselius

    (Department of Economics, University of Copenhagen)

Beyer, 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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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 08-07.

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Length: 25 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:kud:kuiedp:0807
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