Abstract
We use the Fleissig and Whitney [Fleissig, A.R., Whitney, G.A., 2003. A new PC-based test for Varian's weak separability conditions. Journal of Business and Economics Statistics 21 (1), 133-144] 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 show that real growth of the admissible Divisia aggregates enters 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.
| Original language | English |
|---|---|
| Pages (from-to) | 99-114 |
| Number of pages | 16 |
| Journal | Journal of International Money and Finance |
| Volume | 28 |
| Issue number | 1 |
| Early online date | 9 Aug 2008 |
| DOIs | |
| Publication status | Published - Feb 2009 |
Bibliographical note
Funding Information:Jane Binner, Thomas Elger, and Barry Jones gratefully acknowledge funding for this project from the Jan Wallander and Tom Hedelius Foundation (P2007-0147:1). Barry Jones also gratefully acknowledges support from the Leverhulme Trust and Aston University. We thank Livio Stracca for providing us with the data used in this study. We thank Frederick Donatelli for research assistance.
Keywords
- Euro area
- IS curve
- Forecasting
- Divisia aggregates
- Weak separability tests
ASJC Scopus subject areas
- Finance
- Economics and Econometrics