On The Income Velocity Of Money In A Cash-In-Advance Economy With Capital
AbstractA 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 InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2004-21.
Length: 17 pages
Date of creation: May 2004
Date of revision:
Publication status: Published by Ivie
Cash-in-advance; Income velocity; Precautionary money demand.;
Find related papers by JEL classification:
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-19 (All new papers)
- NEP-CBA-2006-02-19 (Central Banking)
- NEP-DGE-2006-02-19 (Dynamic General Equilibrium)
- NEP-MAC-2006-02-19 (Macroeconomics)
- NEP-MON-2006-02-19 (Monetary Economics)
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