A macroeconomic and sub-macroeconomic evaluation of divisia monetary aggregates : $bevidence from three time series applications

The purpose of this dissertation is to provide an empirical evaluation of the macroeconomic information content of divisia monetary aggregates relative to the official simple sum monetary aggregates. The simple sum monetary aggregates, widely used by applied economists and central banks, are well known to possess none of the desirable properties of a meaningful economic aggregate. In contrast, the divisia monetary aggregates are rigorously based on sound aggregation and statistical index number theory. Despite the clear theoretical dominance of the divisia aggregates, the simple sum aggregates are still predominantly used. This is in large part due to incomplete empirical evidence assessing the alternative indices in macroeconomic applications. The research here fills this gap by employing modem multivariate time series models for the analysis of the divisia aggregates.