What Drives Money Velocity?

Altermatt, Sophie; Benati, Luca (December 2017). What Drives Money Velocity? (Discussion Papers 17-07). Bern: Department of Economics

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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.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Altermatt, Sophie Julia and Benati, Luca

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

Discussion Papers

Publisher:

Department of Economics

Language:

English

Submitter:

Lars Tschannen

Date Deposited:

31 Aug 2020 16:08

Last Modified:

31 Aug 2020 16:08

BORIS DOI:

10.7892/boris.145846

URI:

https://boris.unibe.ch/id/eprint/145846

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