Multilateral Aggregation-Theoretic Monetary Aggregation over Heterogeneous Countries

William Barnett ()

No 200413, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: We derive fundamental new theory for measuring monetary service flows aggregated over countries within a multicountry economic union. We develop three increasingly restrictive approaches: (1) the heterogeneous agents approach, (2) the multilateral representative agent approach, and (3) the unilateral representative agent approach. Our heterogeneous agents approach contains our multilateral representative agent approach as a special case. These results are being used by the European Central Bank in the construction of its Divisia monetary aggregates database, with convergence from the most general to the more restrictive approaches expected as economic convergence within the euro area proceeds. Our theory is equally as relevant to other economic unions, with or without a common currency. We use a stochastic approach to aggregation across countries over heterogeneous representative agents. Our theory permits monitoring the effects of policy at the aggregate level over a multicountry economic union, while also monitoring the distribution effects of policy among the countries of the multicountry area. The resulting index number theory assures internal consistency of the data construction methodology with the theory used in applications of the data in modeling and policy.

Keywords: Monetary Aggregation; Aggregation over Countries; Heterogeneous Agents; Multilateral Aggregation; EMU. (search for similar items in EconPapers)
JEL-codes: C43 C82 E41 E51 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: Written
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Working Paper: Multilateral Aggregation-Theoretic Monetary Aggregation over Heterogeneous Countries (2004)
Journal Article: Multilateral aggregation-theoretic monetary aggregation over heterogeneous countries (2007)
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