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Currency - Equivalent Vs . Divisia Monetary Aggregates: Theoretical Evaluation And Empirical Evidence From The United States And China

Author

Listed:
  • Xian HUANG

    (Department of Finance at Economics and Management School of Wuhan University and Financial Department and Policy Research Center of Wuhan University.)

  • Shilong XIA

    (Department of Finance at Economics and Management School of Wuhan University.)

Abstract

The paper derives and compares the theoretical models of currency-equivalent and Divisia monetary aggregates in a new way. We show that currency-equivalent monetary aggregates are superior to Divisia monetary aggregates. Moreover, we compare the stability of demand functions of different monetary aggregates in the United States and China, through Pesaran (1998, 2001)’s methods of “bounds testing for level relationships” and “ARDL approach to cointegration”. We show that in both countries the demand functions of currency-equivalent monetary aggregates are more stable than those of Divisia and simple-sum monetary aggregates. Moreover, currency-equivalent monetary aggregates are more controllable than Divisia and simple-sum monetary aggregates in both countries.

Suggested Citation

  • Xian HUANG & Shilong XIA, 2015. "Currency - Equivalent Vs . Divisia Monetary Aggregates: Theoretical Evaluation And Empirical Evidence From The United States And China," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 60-80, September.
    • Handle: RePEc:rjr:romjef:v::y:2015:i:3:p:60-80
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Currency-equivalent; Divisia; monetary aggregates;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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