Money velocity and the natural rate of interest

Arbeitspapier

Since World War I, M1 velocity has been, to a close approximation, the permanent component of the short-term nominal rate. This logically implies that, under monetary regimes which cause inflation to be I(0), permanent fluctuations in M1 velocity uniquely reflect, to a close approximation, permanent shifts in the natural rate of interest. Evidence from the Euro area and several inflation-targeting countries is compatible with this notion, with velocity fluctuations being systematically strongly correlated with a Stock and Watson (1996, 1998) estimate of trend real GDP growth. I exploit this insight to estimate the natural rate of interest for the United Kingdom and Canada under inflation targeting: In either country, the natural rate has been consistently declining since the early 1990s.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Discussion Papers ; No. 17-06

Klassifikation und Themen

• Klassifikation: Wirtschaft
• Thema: Money demand ; Lucas critique ; structural VARs ; unit roots ; cointegration ; long-run restrictions: natural rate of interest

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Benati, Luca
• Ereignis: Veröffentlichung
• (wer): University of Bern, Department of Economics
• (wo): Bern
• (wann): 2017

Weitere Informationen

• Handle: http://hdl.handle.net/10419/204906
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ