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Some Qualms about the Test of the Institutional Hypothesis of the Long-run Behavior of Velocity

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  • Raj, Baldev
  • Siklos, Pierre L

Abstract

This paper expresses econometric qualms about M. D. Bordo and L. Jonung's (1981) analysis of long-run volocity. They did not recognize that, for U.S. and Canadian data, the log of velocity has a unit root. Hence, estimation of a log-level regression may produce spurious regressions. When Bordo and Jonung's volocity equation is reestimated in rate-of-change form, permanent income is significant, contrary to their earlier conclusion. Moreover, using this approach gives a stronger result for one of the institutional variables in the velocity function, in the sense that the remaining variables become more significant. Copyright 1988 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 26 (1988)
Issue (Month): 3 (July)
Pages: 537-45

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Handle: RePEc:oup:ecinqu:v:26:y:1988:i:3:p:537-45

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Cited by:
  1. Peter N. Ireland, 1991. "Financial evolution and the long-run behavior of velocity : new evidence from U.S. regional data," Economic Review, Federal Reserve Bank of Richmond, issue Nov, pages 16-26.
  2. Michael D. Bordo & Lars Jonung & Pierre Siklos, 1993. "The Common Development of Institutional Change as Measured by Income Velocity: A Century of Evidence from Industrialized Countries," NBER Working Papers 4379, National Bureau of Economic Research, Inc.

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