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Simple Sum Versus Divisia Monetary Aggregates: An Empirical Evaluation

Author

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  • Debashis Acharya

    (Institute for Social and Economic Change)

  • B Kamaiah

Abstract

This paper seeks to establish the superiority of the Divisia monetary aggregates over their Simple sum counterparts in India. The aggregates are constructed over weakly separable groups obtained from a nonparametric test of separability considering four assets viz, (I) currency with the public, (ii) net demand deposits with the banks, (iii) net time deposits with the banks and (iv) post office savings deposits. The analysis covers two different samples – one annual (1970 – 1996) and the other monthly 1985:04 – 1996:09). The comparative performance of the Divisia aggregates in relation to the Simple sum aggregates is evaluated with the help of three tests viz., money demand stability, information content and Davidson-Mackinnon J-tests. The results of the study show that the Divisia aggregates have an edge over their simple sum counterparts. Further, the results of an extended analysis covering a new asset viz., the certificate of deposit, also exhibit a similar trend for the monthly period: 1994:06 – 1996:07.

Suggested Citation

  • Debashis Acharya & B Kamaiah, 2000. "Simple Sum Versus Divisia Monetary Aggregates: An Empirical Evaluation," Working Papers 73, Institute for Social and Economic Change, Bangalore.
    • Handle: RePEc:sch:wpaper:73
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    Cited by:

    1. Sahoo, Biresh K. & Acharya, Debashis, 2010. "An alternative approach to monetary aggregation in DEA," European Journal of Operational Research, Elsevier, vol. 204(3), pages 672-682, August.
    2. Das, Ritupana, 2003. "Government Borrowing and Money Supply," MPRA Paper 72795, University Library of Munich, Germany.
    3. 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.

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    Keywords

    Banking; Money Supply;

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