Does it matter how aggregates are measured? The case of monetary transmission mechanisms in the euro area

Arbeitspapier

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.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1149

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Classification Discontinued 2008. See C83. ; Demand for Money
• Subject: Aggregation ; cointegration ; Eurowide money demand ; Flexible weights ; Aggregation ; Wirtschaftsindikator ; Geldpolitische Transmission ; Geldnachfrage ; Kointegration ; Eurozone ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Beyer, Andreas ; Juselius, Katarina
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/153583