Re-examining the Choice among Monetary Aggregates: Evidence from the Canadian Economy

Jonathan Lebi and Jagdish Handa

The IUP Journal of Monetary Economics, 2007, vol. V, issue 3, 57-78

Abstract: This paper, using data from 1975:01 to 2001:12, re-examines the construction and relative performance of the Simple Sum (SS), Variable Elasticity of Substitution (VES), Divisia (DV) and Certainty Equivalent (CE) monetary aggregates for the Canadian economy. While the construction of the VES aggregate for money broadly defined was attempted, the estimation process did not allow it. Further, we find from an extensive series of tests and cointegration-ECM results for the SS, DV and CE aggregates that none of them dominates the others under all criteria. This finding is consistent with the broad tenor of the literature on monetary aggregation and cautions that the profession needs to rely on different aggregates for different purposes, such as for the money demand function and its stability and central bank control of the economy.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjmo:v:05:y:2007:i:3:p:57-78

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