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Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks

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  • SZILÁRD BENK
  • MAX GILLMAN
  • MICHAL KEJAK

Abstract

The paper sets the neoclassical monetary business cycle model within endogenous growth, adds exchange credit shocks, and finds that money and credit shocks explain much of the velocity variations. The role of the shocks varies across subperiods in an intuitive fashion. Endogenous growth is key to the construction of the money and credit shocks because these have similar effects on velocity, but opposite effects upon growth. The model matches the data's average velocity and simulates well velocity volatility. Its Cagan-like money demand means that money and credit shocks cause greater velocity variation, the higher is the nominal interest rate. Copyright (c) 2008 The Ohio State University.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 40 (2008)
Issue (Month): 6 (09)
Pages: 1281-1293

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Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:6:p:1281-1293

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Szilard Benk & Max Gillman & Michal Kejak, 2009. "A Banking Explanation of the US Velocity of Money: 1919-2004," IEHAS Discussion Papers 0923, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Scheffel, Eric, 2008. "Consumption Velocity in a Cash Costly-Credit Model," Cardiff Economics Working Papers E2008/31, Cardiff University, Cardiff Business School, Economics Section.
  3. Max Gillman & Mark N. Harris, 2009. "The Effect of Inflation on Growth - Evidence from a Panel of Transition Countries," IEHAS Discussion Papers 0912, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  4. Max Gillman & Michal Kejak, 2007. " Inflation, Financial Development and Human Capital-Based Endogenous Growth: an Explanation of Ten Empirical Findings," CDMA Conference Paper Series 0703, Centre for Dynamic Macroeconomic Analysis.
  5. Max Gillman & Michal Kejak, 2008. "Tax Evasion and Growth: a Banking Approach," IEHAS Discussion Papers 0806, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  6. Gillman, Max & Kejak, Michal, 2008. "Inflation, Investment and Growth: a Banking Approach," Cardiff Economics Working Papers E2008/18, Cardiff University, Cardiff Business School, Economics Section, revised Oct 2008.
  7. Ceri Davies & Max Gillman & Michal Kejak, 2012. "Deriving the Taylor Principle when the Central Bank Supplies Money," CEU Working Papers 2012_13, Department of Economics, Central European University, revised 23 Jul 2012.
  8. Gillman, Max & Nakov, Anton, 2008. "Monetary Effects on Nominal Oil Prices," Cardiff Economics Working Papers E2008/15, Cardiff University, Cardiff Business School, Economics Section, revised Nov 2009.
  9. Charles Nolan & Christoph Thoenissen, 2008. "Financial shocks and the US business cycle," CDMA Working Paper Series 200810, Centre for Dynamic Macroeconomic Analysis.
  10. Benk, Szilárd & Gillman, Max & Kejak, Michal, 2009. "US Volatility Cycles of Output and Inflation, 1919-2004: A Money and Banking Approach to a Puzzle," CEPR Discussion Papers 7150, C.E.P.R. Discussion Papers.
  11. Nao Sudo, 2011. "Accounting for the Decline in the Velocity of Money in the Japanese Economy," IMES Discussion Paper Series 11-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
  12. Hong, Hao, 2011. "Money, interest rates and the real activity," Cardiff Economics Working Papers E2011/18, Cardiff University, Cardiff Business School, Economics Section.

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