Constructing Historical Euro‐zone Data

Existing methods of reconstructing historical Euro‐zone data by aggregation of the individual countries' aggregate data raises numerous difficulties, especially due to past exchange rate changes. The approach proposed here is designed to avoid such distortions, and aggregate exactly when exchange rates are fixed. We first compute growth rates within states, aggregate these, then cumulate this Euro‐zone growth rate to obtain the aggregated levels variables. The aggregate of the implicit‐deflator price index coincides with the implicit deflator of our aggregate nominal and real data. We apply the method to Euro‐zone M3, GDP and prices over the previous two decades.