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Stock prices and money velocity: a multi-country analysis

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  • Massimo Caruso

    (Banca d'Italia, Rome Main Branch - Economic Research Unit, 00186 Rome, Italy)

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    Abstract

    What kind of information do stock prices offer for predicting velocity? This paper develops previous work by Milton Friedman for the US economy and shows that in a panel of 25 countries a wealth effect derived from the stock market has negatively influenced the ratio of nominal income to a broad definition of money. Taking quarterly data for the period 1961-1998, the relationship holds in Japan, the UK and Switzerland; in Italy a substitution effect (away from money) has also been operating. Overall, these empirical findings indicate the presence of systematic influences of stock price fluctuations on money velocity and suggest that the repercussions of asset inflation and deflation on the behavior of monetary aggregates should be monitored.

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    Bibliographic Info

    Article provided by Springer in its journal Empirical Economics.

    Volume (Year): 26 (2001)
    Issue (Month): 4 ()
    Pages: 651-672

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    Handle: RePEc:spr:empeco:v:26:y:2001:i:4:p:651-672

    Note: received: July 1998/Final version received: November 2000
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    Related research

    Keywords: stock market fluctuations; asset prices volatility; demand for money; monetary policy;

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    Cited by:
    1. Guglielmo Maria Caporale & Alaa M. Soliman, 2013. "Stock Prices and Monetary Policy: An Impulse Response Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 701-709.
    2. Cronin, David, 2014. "The interaction between money and asset markets: A spillover index approach," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 185-202.
    3. Baharumshah, Ahmad Zubaidi & Mohd, Siti Hamizah & Mansur M. Masih, A., 2009. "The stability of money demand in China: Evidence from the ARDL model," Economic Systems, Elsevier, vol. 33(3), pages 231-244, September.
    4. Kai Carstensen, 2003. "Is European Money Demand Still Stable?," Kiel Working Papers 1179, Kiel Institute for the World Economy.
    5. Massimo Caruso, 2006. "Stock market fluctuations and money demand in Italy, 1913-2003," Temi di discussione (Economic working papers) 576, Bank of Italy, Economic Research and International Relations Area.

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