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Analysing Divisia Aggregates for the Euro Area

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  • Reimers, Hans-Eggert

Abstract

In this paper, different Divisia monetary aggregates for the euro area are constructed over the period from 1980 to 2000. Theoretically, one main difference of these aggregates is their reaction to exchange-rate variations. Empirically, the aggregates are compared with respect to three issues. First, the demand for the Divisia aggregates is evaluated using the cointegrated VEC model and single-equation techniques, where stable demand functions are estimated. Second, the information content of these aggregates as regards future output is investigated. Evidence is presented that one of the Divisia aggregates has most information content from a forward-looking perspective. Third, using the P-star framework, the importance of money for future price movements is examined. Adapting an in-sample analysis, Divisia aggregates are important for HICP development and to some extent for GDP deflator movement. The out-ofsample forecasting exercise presents, on the one hand, evidence that simple-sum M3 includes more information for the HICP, whereas one of the Divisia aggregates helps to predict the future GDP deflator. On the other hand conspicuous control errors exist. In sum, the paper supports the view that money should have an important role in the conduct of monetary policy in the euro area.

Suggested Citation

  • Reimers, Hans-Eggert, 2002. "Analysing Divisia Aggregates for the Euro Area," Discussion Paper Series 1: Economic Studies 2002,13, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:4178
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    Cited by:

    1. 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..
    2. Ryadh M. Alkhareif & William Barnett, 2012. "Divisia Monetary Aggregates for the GCC Countries," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201209, University of Kansas, Department of Economics, revised Aug 2012.
    3. Darvas, Zsolt, 2015. "Does money matter in the euro area? Evidence from a new Divisia index," Economics Letters, Elsevier, vol. 133(C), pages 123-126.
    4. 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.
    5. Barnett, William A., 2003. "Aggregation-theoretic monetary aggregation over the euro area, when countries are heterogeneous," Working Paper Series 260, European Central Bank.
    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.

    More about this item

    Keywords

    Divisia monetary aggregate; Money demand; Controllability; IS-curves; P-Star;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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