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    Measurement Error in Monetary Aggregates:  A Markov Switching Factor Approach

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    Issue Date
    2009-09-01
    Author
    Barnett, William A.
    Chauvet, Marcelle
    Tierney, Heather L. R.
    Publisher
    Cambridge University Press
    Type
    Article
    Article Version
    Scholarly/refereed, author accepted manuscript
    Metadata
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    Abstract
    This paper compares the different dynamics of the simple-sum monetary aggregates and the Divisia monetary aggregate indices over time, over the business cycle, and across high and low inflation and interest-rate phases. Although traditional comparisons of the series sometimes suggest that simple-sum and Divisia monetary aggregates share similar dynamics, there are important differences around turning points that cannot be evaluated by their average behavior. We use a factor model with a regime-switching model that separates the common movements underlying the monetary aggregate indices from idiosyncratic variations in each series. We find that the major differences between the simple-sum aggregates and Divisia indices occur around the beginnings and ends of recessions and during some high-interest-rate phases. We note the inferences' policy relevance, which is particularly dramatic at the broadest (M3) level of aggregation. Indeed, as Belongia [Journal of Political Economy, 104 (5) (1996), 1065–1083] has observed in this regard, “measurement matters.”
    Description
    This is the author's final draft of an article for which the publisher's official version is available electronically from: http://dx.doi.org/10.1017/S1365100509090166
    URI
    http://hdl.handle.net/1808/13145
    DOI
    https://doi.org/10.1017/S1365100509090166
    Collections
    • Distinguished Professors Scholarly Works [918]
    • Economics Scholarly Works [183]
    Citation
    Barnett, William. "Measurement Error in Monetary Aggregates:  A Markov Switching Factor Approach," with Marcelle Chauvet and Heather Tierney, Macroeconomic Dynamics, vol 13, Supplement 2, 2009, September,  pp. 381-412. http://dx.doi.org/10.1017/S1365100509090166

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    Contact KU ScholarWorks
    785-864-8983
    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    785-864-8983

    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    Image Credits
     

     

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