Arbeitspapier

What drives money velocity?

Since World War II, permanent interest rate shocks have driven nearly all of the fluctuations of U.S. M1 velocity, which is cointegrated with the short rate, and most of the long-horizon variation in the velocity of M2-M1. Permanent velocity shocks specific to M2-M1, on the other hand, have played a minor role. Further, counterfactual simulations show that, absent permanent interest rate shocks, M1 velocity would have been broadly flat, and fluctuations in the velocity of M2-M1 would have been more subdued than they have historically been. We show that failure to distinguish between M1 and M2-M1 causes a significant distortion of the inference, erroneously pointing towards a dominant role for M2 velocity shocks.

Language
Englisch

Bibliographic citation
Series: Discussion Papers ; No. 17-07

Classification
Wirtschaft
Subject
Money demand
structural VARs
unit roots
cointegration
longrun restrictions

Event
Geistige Schöpfung
(who)
Benati, Luca
Event
Veröffentlichung
(who)
University of Bern, Department of Economics
(where)
Bern
(when)
2017

Handle
Last update
20.09.2024, 8:22 AM CEST

Data provider

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Object type

  • Arbeitspapier

Associated

  • Benati, Luca
  • University of Bern, Department of Economics

Time of origin

  • 2017

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