The Tracking Ability of the Divisia Monetary Aggregate Under Risk

Mark Jensen

Macroeconomics from University Library of Munich, Germany

Abstract: This paper attempts to establish a link between aggregation and index theory, which exists under perfect certainty, but is not known to exist under risk aversion. The paper develops a consumer based demand for money problem where the consumer is risk averse and has a known theoretical monetary aggregate. This dynamic optimization problem's solutions are approximated by the numerical Parameterized Expectation Approach and used to calculate the theoretical and Divisia monetary aggregate. The paper shows that for certain model parameter values the approximated rational expectation solutions cause the Divisia aggregate to closely track the theoretical monetary aggregate, and hence, establishes a link between aggregation and index theory when risk is present. Unfortunately, for other parameter values the Parameterized Expectation Approach fails to provide adequate solutions to conclude that this tracking continues when the level of risk aversion is large or when a different theoretical monetary aggregate exists.

JEL-codes: E (search for similar items in EconPapers)
Date: 1993-09-21
Note: The paper is a Latex style document. The figures can be obtained by e-mailing me at jensen@wuecona.wustl.edu for them.
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/9309/9309002.tex (application/x-tex)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/9309/9309002.pdf (application/pdf)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/9309/9309002.ps.gz (application/postscript)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:9309002

Access Statistics for this paper

More papers in Macroeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).