Simple sum vs Divisia monetary aggregates: An empirical evaluation

D Acharya, B Kamaiah - Economic and Political Weekly, 2001 - JSTOR
D Acharya, B Kamaiah
Economic and Political Weekly, 2001JSTOR
This paper seeks to establish the superiority of the Divisia monetary aggregates over their
simple sum counterparts in India. The aggregates are constructed over weakly separable
groups obtained from a non-parametric test of separability considering four assets, viz,(i)
currency with the public,(ii) net demand deposits with the banks,(iii) net time deposits with
the banks and (iv) post office savings deposits. The analysis covers two different samples-
one annual (1970-1996) and the other monthly (1985: 04-1996: 09). The comparative …
This paper seeks to establish the superiority of the Divisia monetary aggregates over their simple sum counterparts in India. The aggregates are constructed over weakly separable groups obtained from a non-parametric test of separability considering four assets, viz, (i) currency with the public, (ii) net demand deposits with the banks, (iii) net time deposits with the banks and (iv) post office savings deposits. The analysis covers two different samples - one annual (1970-1996) and the other monthly (1985:04-1996:09). The comparative performance of the divisia aggregates in relation to the simple sum aggregates is evaluated with the help of three tests, viz, money demand stability, information content and Davidson-Mackinnon J-tests. The results of the study show that the Divisia aggregates have an edge over their simple sum counterparts. Further, the results of an extended analysis covering a new asset, viz, the certificate of deposit, also exhibit a similar trend for the monthly sample period: 1994:06-1996:07.
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