Euro-area Divisia Aggregates Now Available through Bruegel

Bruegel Senior Fellow Zsolt Darvas created and made available euro-area Divisia aggregates. The new dataset includes monthly data from January 2001 onwards on euro-area simple-sum and Divisia money aggregates corresponding to the ECB’s M1, M2 and M3 aggregates for:

    Euro area (changing composition);
    The first 12 members of the euro area;
    Break-adjusted euro area (changing composition) “notional outstanding stock” calculated by cumulating transactions.

The dataset can be downloaded from Darvas plans on updating the dataset in the future so bookmark this page.

Mr. Darvas has also released a working paper, “Does Money Matter in the Euro Area? Evidence from a New Divisia Index” where he examines the possible role of money shocks on output and prices in the euro area. Highlights from his paper are:

  • Standard simple-sum monetary aggregates, like M3, sum up monetary assets that are imperfect substitutes and provide different transaction and investment services. Divisia monetary aggregates, originated from Barnett (1980), are derived from economic aggregation and index number theory and aim to aggregate the money components by considering their transaction service.
  • No Divisia monetary aggregates are published for the euro area, in contrast to the United Kingdom and United States. We derive and make available a dataset on euro-area Divisia money aggregates for January 2001 – September 2014 using monthly data.
  • Using structural vector-auto regressions (SVAR), we find that Divisia aggregates have a significant impact on output about 1.5 years after a shock and tend also to have an impact on prices and interest rates. The latter result suggests that the European Central Bank reacted to developments in monetary aggregates. Divisia aggregates reacted negatively to unexpected increases in the interest rates. None of these results are significant when we use simple-sum measures of money.
  • Our findings complement the evidence from US data that Divisia monetary aggregates are useful in assessing the impacts of monetary policy and that they work better in SVAR models than simple-sum measures of money.
  • And finally, read Zsolt Darvas’ blog postMoney Matters in the Euro Area: A New Dataset on Euro Area Divisia Money Suggests that Money Shocks Have an Impact on the Economy.”