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

Andreas Beyer () and Katarina Juselius

No 08-07, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: 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.

Keywords: aggregation; flexible weights; Eurowide money demand; cointegration (search for similar items in EconPapers)
JEL-codes: C32 C42 E41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2008-03
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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