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The Methodology and Practice of EconometricsA Festschrift in Honour of David F. Hendry$
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Jennifer Castle and Neil Shephard

Print publication date: 2009

Print ISBN-13: 9780199237197

Published to Oxford Scholarship Online: September 2009

DOI: 10.1093/acprof:oso/9780199237197.001.0001

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Does it Matter How to Measure Aggregates? The Case of Monetary Transmission Mechanisms in the Euro Area *

Does it Matter How to Measure Aggregates? The Case of Monetary Transmission Mechanisms in the Euro Area *

Chapter:
(p.365) 15 Does it Matter How to Measure Aggregates? The Case of Monetary Transmission Mechanisms in the Euro Area*
Source:
The Methodology and Practice of Econometrics
Author(s):

Andreas Beyer

Katarina Juselius

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199237197.003.0015

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 chapter 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.

Keywords:   aggregation, flexible weights, Eurowide money demand, cointegration

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