Institution(s): School of Economics and Finance, Hong Kong Institute of Economics and Business Strategy

Date: Feb 12, 2003 (Wednesday)

Time: 04:30 pm - 06:00 pm

Venue: Room 910 K.K. Leung Building, The University of Hong Kong


We investigate the issue of whether there was a stable money demand function for Japan in 1990's using both aggregate and disaggregate time series data. The aggregate data appears to support the contention that there was no stable money demand function. The disaggregate data shows that there was a stable money demand function. Neither was there any indication of the presence of liquidity trap. Possible sources of discrepancy are explored and the diametrically opposite results between the aggregate and disaggregate analysis are attributed to the neglected heterogeneity among micro units. We also conduct simulation analysis to show that when heterogeneity among micro units is present, the prediction of aggregate outcomes, using aggregate data is less accurate than the prediction based on micro equations. Moreover, policy evaluation based on aggregate data can be grossly misleading.