Evolving weights for a new United Kingdom Divisia

Jane Binner

Research output: Working paper

Abstract

Divisia money is a monetary aggregate that gives each component asset an assigned weight. We use an evolutionary neural network to calculate new Divisia weights for each component utilising the Bank of England monetary data for the U.K. We propose a new monetary aggregate using our newly derived weights to carry out quantitative inflation prediction. The results show that this new monetary aggregate has better inflation forecasting performance than the traditionally constructed Bank of England Divisa money. This result is important for monetary policymakers, as improved construction of monetary aggregates will yield tighter relationships between key macroeconomic variables and ultimately, greater macroeconomic control. Research is ongoing to establish the extent of the increased information content and parameter stability of this new monetary aggregate.
Original languageEnglish
Place of PublicationBirmingham
PublisherAston University
ISBN (Print)9781854497390
Publication statusPublished - Dec 2008

Bibliographical note

RP0818

Keywords

  • Divisia money
  • monetary aggregate
  • component asset
  • assigned weight
  • evolutionary neural network
  • quantitative inflation prediction
  • inflation forecasting performance

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  • Cite this

    Binner, J. (2008). Evolving weights for a new United Kingdom Divisia. Aston University.