The money multiplier, simple sum, Divisia and innovation-Divisia monetary aggregates: cointegration tests for the UK

J.L. Ford

18 citations0/0 files storedApplied Economics

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

The possibility is investigated of establishing a cointegrating relationship between various competing monetary aggregates and a high-powered money base for the UK, 1977-1994. The aggregates are constructed from the Bank of England's M4. Cointegrating equations are found for all aggregates; with little to choose between them; and Divisia being at least as good as its simple sum counterpart. The ECM/causality results are not as promising; though they all suggest that high-powered money is weakly exogenous. The simple sum provides the best dynamic results, closely followed by the Divisia adjusted for implicit interest payments on cheque accounts.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1988Statistical analysis of cointegration vectors 1990MAXIMUM LIKELIHOOD ESTIMATION AND INFERENCE ON COINTEGRATION — WITH APPLICATIONS TO THE DEMAND FOR MONEY 1987Time Series Regression with a Unit Root 1969Fitting autoregressive models for prediction 1988Testing for Common Trends 1997The Review of Economics and Statistics 1982The Nonparametric Approach to Demand Analysis

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