Sweep programs and optimal monetary aggregation

This paper examines the admissibility of monetary aggregate groupings for the US over 1993-2001, based upon weak separability. We investigate the impact of retail and commercial demand deposit sweep programs on the separability of monetary asset groupings. Weak separability is tested using the Swofford-Whitney and Fleissig-Whitney tests. We use Varian's measurement error adjustment procedure to eliminate violations of the Generalized Axiom of Revealed Preference (GARP). When funds from both retail and commercial demand deposit sweep programs are placed within checkable deposits, all groupings, narrow and broad, pass GARP and weak separability. For groupings based on conventional money measures, tests tend to favor broad aggregates.