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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2004:7:
The Optimal Level of Monetary Aggregation in the UK

Thomas Elger, Barry Jones (), David Edgerton () and Jane Binner ()

Abstract: This paper tests the weak separability of the assets in the Bank of England's household-sector Divisia index from 1977Q1 to 2000Q4. The study is based on a revealed preference framework and uses a nonparametric procedure that jointly tests necessary and sufficient conditions for weak separability, allows for incomplete adjustment of expenditure on monetary services, and allows for measurement errors in the monetary quantity data. The assets included in the Bank of England Divisia index are weakly separable with complete adjustment in two sub-samples covering most of the eighties. A narrower aggregate is weakly separable with complete adjustment in each sub-sample we investigated.

Keywords: weak separability; incomplete adjustment; measurement error; (follow links to similar papers)

JEL-Codes: C43; (follow links to similar papers)

33 pages, March 9, 2004, Revised January 26, 2005

This paper has been published as "A Note on the Optimal Level of Monetary Aggregation in the UK."

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This paper is published as:
Elger, Thomas, Barry Jones, David Edgerton and Jane Binner, (2008), 'The Optimal Level of Monetary Aggregation in the UK', Macroeconomic Dynamics, Vol. 12, pages 117-131



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