Admissible monetary aggregates for the Euro area


We use the Fleissig and Whitney (2003) weak separability test to determine admissible levels of monetary aggregation for the Euro area. We find that the Euro area monetary assets in M2 and M3 are weakly separable and construct admissible Divisia monetary aggregates for these assets. We evaluate the Divisia aggregates as indicator variables, building on Nelson (2002), Reimers (2002), and Stracca (2004). Specifically, we show that real growth of the admissible Divisia aggregates enter the Euro area IS curve positively and significantly for the period from 1980 to 2005. Out of sample, we show that Divisia M2 and M3 appear to contain useful information for forecasting Euro area inflation.

Divisions: College of Business and Social Sciences > Aston Business School > Economics, Finance & Entrepreneurship
Uncontrolled Keywords: weak separability tests,IS curve,forecasting,Euro area,divisia aggregates
ISBN: 1-85449-624-7
PURE Output Type: Working paper
Published Date: 2006-10
Authors: Binner, Jane
Bissoondeeal, Rakesh K. (ORCID Profile 0000-0003-3950-0507)



Version: Accepted Version

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