Divisia Aggregates: A Literature Review and an Application to the Demand for Money in Paraguay

Luis Molinas Sosa ()
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Luis Molinas Sosa: Central Bank of Paraguay

Ensayos Económicos, 2021, vol. 1, issue 77, 33-49

Abstract: Divisia's monetary aggregates have been shown to outperform the simple sum monetary aggregates used by policymakers in the vast majority of the world's central banks. Since Barnett (1978, 1980) derived the user cost price and produced the correct theoretical value of the aggregation, Divisia's monetary aggregates have helped to solve some of the profession's most difficult problems. Therefore, this study calculates Divisia's monetary aggregates for Paraguay in order to examine its performance against simple-sum monetary aggregates in estimating the demand for money. The results suggest that Divisia's monetary aggregates are superior to the simple sum aggregates in estimating the demand for money.

Keywords: Divisia; interest rates; international finance; monetary policy; money demand (search for similar items in EconPapers)
JEL-codes: E41 E43 E52 E59 F30 (search for similar items in EconPapers)
Date: 2021
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