TY - UNPB

T1 - Does it Matter How to Measure Aggregates?

T2 - The Case of Monetary Transmission Mechanisms in the Euro Area

AU - Beyer, Andreas

AU - Juselius, Katarina

N1 - JEL Classification: C32, C42, E41

PY - 2008

Y1 - 2008

N2 - 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 investigatethe 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

AB - 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 investigatethe 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

KW - Faculty of Social Sciences

KW - aggregation

KW - flexible weight

KW - Eurowide money demand

KW - cointegration

M3 - Working paper

BT - Does it Matter How to Measure Aggregates?

PB - Department of Economics, University of Copenhagen

ER -