Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153583
Authors: 
Beyer, Andreas
Juselius, Katarina
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper 1149
Abstract: 
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.
Subjects: 
Aggregation
cointegration
Eurowide money demand
Flexible weights
JEL: 
C32
C42
E41
Document Type: 
Working Paper

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