Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

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

Thomas Elger , Barry Jones (), David Edgerton () and Jane Binner ()
Additional contact information
Thomas Elger: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Barry Jones: Department of Economics, Binghampton University, Postal: Department of Economics, Binghampton University, PO Box 6000 , Binghamton, NY 13902, USA
David Edgerton: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Jane Binner: University of Sheffield Management School, Postal: University of Sheffield Management School, 9 Mappin Street, Sheffield, S1 4DT, United Kingdom

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

JEL-codes: C43

33 pages, First version: March 9, 2004. Revised: January 26, 2005.

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

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