Divisia Aggregation and Substitutability among Monetary Assets

Abstract

In this paper the authors estimate the degree of substitutability among the services of money, checkable deposits, savings deposits, and time deposits in a quasi-homothetic translog utility framework for Canada. The four composites mentioned are formed by aggregating more basic assets such as checkable deposits at banks, checkable deposits at trust companies, etc. Traditionally the simple-sum aggregation has been used in this context. The authors investigate both this alternative and Divisia aggregation of the assets. They find a low degree of substitution among the services of monetary assets and provide some evidence favoring Divisia aggregation over simple-sum aggregation. Copyright 1986 by Ohio State University Press.

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