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On The Income Velocity Of Money In A Cash-In-Advance Economy With Capital

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  • Jana Hromcová

    ()
    (Universitat de Girona)

Abstract

A stochastic growth model with money introduced via a cash-in-advance constraint is used to analyze the behaviour of the income velocity of real monetary balances. Agents can purchase consumption goods only using government issued money and capital is a credit good. The cash-in-advance constraint may become nonbinding because of the uncertainty about the realization of the state of the economy. Changes in the income velocity of money due to a precautionary money demand are studied. We find that despite the precautionary money demand does not introduce significant changes into the volatility of the income velocity, its presence can alter the relationship between the growth rate of money supply and the income velocity.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2004-21.

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Length: 17 pages
Date of creation: May 2004
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2004-21

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Keywords: Cash-in-advance; Income velocity; Precautionary money demand.;

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References

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  1. Jordi Caballé & Jana Hromcová, 2011. "The Role of Central Bank Operating Procedures in an Economy with Productive Government Spending," Computational Economics, Society for Computational Economics, vol. 37(1), pages 39-65, January.
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Cited by:
  1. Jana Hromcová, 2005. "Precautionary Money Demand in a Cash-in-Advance Economy with Capital," Computational Economics, Society for Computational Economics, vol. 26(1), pages 51-63, August.

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