Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Banking Explanation of the US Velocity of Money: 1919-2004

Contents:

Author Info

  • Benk, Szilárd
  • Gillman, Max

    ()
    (Cardiff Business School)

  • Kejak, Michal

Abstract

The paper shows that US GDP velocity of M1 money has exhibited long cycles around a 1.25% per year upward trend, during the 1919-2004 period. It explains the velocity cycles through shocks constructed from a DSGE model and annual time series data (Ingram et al., 1994). Model velocity is stable along the balanced growth path, which features endogenous growth and decentralized banking that produces exchange credit. Positive shocks to credit productivity and money supply increase velocity, as money demand falls, while a positive goods productivity shock raises temporary output and velocity. The paper explains such velocity volatility at both business cycle and long run frequencies. With filtered velocity turning negative, starting during the 1930s and the 1987 crashes, and again around 2003, results suggest that the money and credit shocks appear to be more important for velocity during less stable times and the goods productivity shock more important during stable times.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://patrickminford.net/wp/E2009_25.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2009/25.

as in new window
Length: 33 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:cdf:wpaper:2009/25

Contact details of provider:
Postal: Aberconway Building, Colum Drive, CARDIFF, CF10 3EU
Phone: +44 (0) 29 20874417
Fax: +44 (0) 29 20874419
Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers
More information through EDIRC

Related research

Keywords: Volatility; business cycle; credit shocks; velocity;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S126-50, October.
  2. Daniel Levy & Hashem Dezhbakhsh, 2002. "On the Typical Spectral Shape of an Economic Variable," Working Papers, Bar-Ilan University, Department of Economics 2002-16, Bar-Ilan University, Department of Economics.
  3. Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Optimal fiscal and monetary policy under sticky prices," Journal of Economic Theory, Elsevier, Elsevier, vol. 114(2), pages 198-230, February.
  4. Simon Kuznets & Lillian Epstein & Elizabeth Jenks, 1941. "National Income and Its Composition, 1919-1938, Volume I," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number kuzn41-1.
  5. Bennett T. McCallum, 1989. "Could A Monetary Base Rule Have Prevented the Great Depression?," NBER Working Papers 3162, National Bureau of Economic Research, Inc.
  6. Gillman, Max & Kejak, Michal, 2005. "Inflation and Balanced-Path Growth with Alternative Payment Mechanisms," Cardiff Economics Working Papers E2005/15, Cardiff University, Cardiff Business School, Economics Section.
  7. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, Elsevier, vol. 17(2), pages 271-291, March.
  8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  9. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu, 2005. "Fluctuations in Convex Models of Endogenous Growth II: Business Cycle Properties," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 805-828, October.
  10. Max Gillman & Michal Kejak, 2004. "The Demand for Bank Reserves and Other Monetary Aggregates," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 42(3), pages 518-533, July.
  11. Hartley, James & Sheffrin, Steven & Salyer, Kevin, 1997. "Calibration and Real Business Cycle Models: An Unorthodox Experiment," Journal of Macroeconomics, Elsevier, Elsevier, vol. 19(1), pages 1-17, January.
  12. Charles Nolan & Christoph Thoenissen, 2008. "Financial shocks and the US business cycle," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 200810, Centre for Dynamic Macroeconomic Analysis.
  13. Benk, Szilárd & Gillman, Max & Kejak, Michal, 2007. "Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks," Cardiff Economics Working Papers E2007/14, Cardiff University, Cardiff Business School, Economics Section.
  14. Cooley, T.F. & Hansen, G.D., 1988. "The Inflation Tax In A Real Business Cycle Model," Papers, Rochester, Business - General 88-05, Rochester, Business - General.
  15. Ireland, Peter N., 1994. "Economic growth, financial evolution, and the long-run behavior of velocity," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 18(3-4), pages 815-848.
  16. Nolan, Charles & Thoenissen, Christoph, 2008. "Financial shocks and the US business cycle," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2008-58, Scottish Institute for Research in Economics (SIRE).
  17. Stilianos Fountas & Menelaos Karanasos & Jinki Kim, 2006. "Inflation Uncertainty, Output Growth Uncertainty and Macroeconomic Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 68(3), pages 319-343, 06.
  18. Szilárd Benk & Max Gillman & Michal Kejak, 2005. "Credit Shocks in the Financial Deregulatory Era: Not the Usual Suspects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 668-687, July.
  19. Gomme, Paul & Rupert, Peter, 2007. "Theory, measurement and calibration of macroeconomic models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(2), pages 460-497, March.
  20. Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band pass filter," Working Paper, Federal Reserve Bank of Cleveland 9906, Federal Reserve Bank of Cleveland.
  21. Max Gillman & Michal Kejak, 2009. "Inflation, Investment and Growth: a Money and Banking Approach," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 0911, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  22. English, William B., 1999. "Inflation and financial sector size," Journal of Monetary Economics, Elsevier, Elsevier, vol. 44(3), pages 379-400, December.
  23. Gillman, Max, 1993. "The welfare cost of inflation in a cash-in-advance economy with costly credit," Journal of Monetary Economics, Elsevier, Elsevier, vol. 31(1), pages 97-115, February.
  24. Robert G. King & Charles I. Plosser, 1982. "The Behavior of Money, Credit, and Prices in a Real Business Cycle," NBER Working Papers 0853, National Bureau of Economic Research, Inc.
  25. Ingram, B.F. & Kocherlakota, N.R. & Savin, N.E., 1992. "Explaining Business Cycles : A Multiple Shock Approach," Working Papers, University of Iowa, Department of Economics 92-09, University of Iowa, Department of Economics.
  26. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 363-80, June.
  27. Hancock, Diana, 1985. "The Financial Firm: Production with Monetary and Nonmonetary Goods," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(5), pages 859-80, October.
  28. Hromcová, Jana, 2008. "Learning-or-doing in a cash-in-advance economy with costly credit," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(9), pages 2826-2853, September.
  29. Max Gillman & Mark N. Harris & László Mátyás, 2004. "Inflation and growth: Explaining a negative effect," Empirical Economics, Springer, Springer, vol. 29(1), pages 149-167, January.
  30. Bansal, Ravi & Coleman, Wilbur John, II, 1996. "A Monetary Explanation of the Equity Premium, Term Premium, and Risk-Free Rate Puzzles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(6), pages 1135-71, December.
  31. Clark, Jeffrey A, 1984. "Estimation of Economies of Scale in Banking Using a Generalized Functional Form," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 16(1), pages 53-68, February.
  32. Robert E. Lipsey & Helen Stone Tice, 1989. "The Measurement of Saving, Investment, and Wealth," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number lips89-1.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Basu, Parantap & Gillman, Max & Pearlman, Joseph, 2012. "Inflation, human capital and Tobin's q," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(7), pages 1057-1074.
  2. Gunes Kamber & Christoph Thoenissen, 2013. "Financial exposure and the international transmission of financial shocks," CAMA Working Papers 2013-39, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Ceri Davies & Max Gillman & Michal Kejak, 2012. "Deriving the Taylor Principle when the Central Bank Supplies Money," CEU Working Papers, Department of Economics, Central European University 2012_13, Department of Economics, Central European University, revised 23 Jul 2012.
  4. Francisco Callado-Muñoz & Jana Hromcová & Natalia Utrero-González, 2014. "Openness and Technology Diffusion in Payment Systems: The Case of NAFTA," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 43(4), pages 497-519, April.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cdf:wpaper:2009/25. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruce Webb).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.