A New Empirical Weighted Monetary Aggregate for the UK

Leigh Drake and Terence C Mills

International Journal of Finance & Economics, 2001, vol. 6, issue 3, 217-34

Abstract: This paper utilizes an approach to long-run modelling proposed by Pesaran et al. (1996. Testing for the existence of a long run relationship. Mimeo, University of Cambridge) to develop an empirical weighted broad monetary aggregate for the UK. The properties of this new aggregate are contrasted with those of the corresponding simple sum and Divisia aggregates. The new weighted monetary aggregate is found to be highly stable and conforms well with standard money demand properties. The aggregate also displays sensible impulse response and persistence profiles to monetary shocks in the context of a VECM framework. Finally, the empirical weighted aggregate displays superior information content in respect of nominal income when contrasted with simple sum and Divisia aggregates using a series of St. Louis equations. Copyright @ 2001 by John Wiley & Sons, Ltd. All rights reserved.

Date: 2001
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