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The Exact Theoretical Rational Expectations Monetary Aggregate

Author

Listed:
  • William A. Barnett

    (Washington University in St. Louis)

  • Melvin J. Hinich

    (University of Texas - Austin)

  • Piyu Yue

    (IC2 Institute at the U. of Texas at Austin)

Abstract

In aggregation theory, index numbers are judged relative to their ability to track the exact aggregator functions nested within the economy's structure. Within the monetary sector, Barnett, Liu, and Jensen (1997) compared two statistical index numbers: the Divisia monetary aggregate and the simple sum monetary aggregate. They produced those comparisons using simulated data. In this paper, we again compare those two statistical index numbers with the exact rational expectations monetary aggregate, but we use actual data. Since we are not using simulated data, we estimate the parameters of the Euler equations and thereby of the nested monetary aggregator function using generalized method of moments. We explore the tracking errors of the two index numbers relative to the estimated exact aggregate. We investigate the circumstances under which risk aversion increases tracking error. We also use polyspectral methods to test for the existence of remaining nonlinear structure in the residual tracking errors

Suggested Citation

  • William A. Barnett & Melvin J. Hinich & Piyu Yue, 2000. "The Exact Theoretical Rational Expectations Monetary Aggregate," Macroeconomics 0003004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0003004
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    Cited by:

    1. William A. Barnett & Marcelle Chauvet & Heather L. R. Tierney, 2011. "Measurement Error in Monetary Aggregates: A Markov Switching Factor Approach," World Scientific Book Chapters, in: Financial Aggregation And Index Number Theory, chapter 7, pages 207-249, World Scientific Publishing Co. Pte. Ltd..
    2. Michael T. Belongia, 1992. "Selecting an intermediate target variable for monetary policy when the goal is price stability," Working Papers 1992-008, Federal Reserve Bank of St. Louis.
    3. William A Barnett & Unja Chae & John W Keating, 2012. "Forecast Design In Monetary Capital Stock Measurement," Global Journal of Economics (GJE), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 1-53.
    4. William A. Barnett & Shu Wu, 2011. "On User Costs of Risky Monetary Assets," World Scientific Book Chapters, in: Financial Aggregation And Index Number Theory, chapter 3, pages 85-105, World Scientific Publishing Co. Pte. Ltd..
    5. William Barnett & Shu Wu, 2004. "Intertemporally non-separable monetary-asset risk adjustment and aggregation," Economics Bulletin, AccessEcon, vol. 5(13), pages 1-9.
    6. repec:ebl:ecbull:v:5:y:2004:i:13:p:1-9 is not listed on IDEAS
    7. Binner, Jane & Elger, Thomas, 2002. "The UK Personal Sector Demand for Risky Money," Working Papers 2002:9, Lund University, Department of Economics.
    8. Binner, Jane & Elger, Thomas & de Peretti, Philipe, 2002. "Is UK Risky Money Weakly Separable? A Stochastic Approach," Working Papers 2002:13, Lund University, Department of Economics.

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    More about this item

    Keywords

    Monetary aggregation; index number theory; spectral analysis; nonlinearity;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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