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Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks

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Author Info

  • Szilárd Benk

    ()
    (Magyar Nemzeti Bank)

  • Max Gillman

    ()
    (Cardiff Business School)

  • Michal Kejak

    ()
    (CERGE-EI)

Abstract

The paper sets the neoclassical monetary business cycle model within endogenous growth, adds exchange credit shocks, and finds that money and credit shocks explain much of the velocity variation. The role of the shocks varies across sub-periods in an intuitive fashion. Endogenous growth is key to the construction of the money and credit shocks since these have similar effects on velocity, but opposite effects upon growth. The model matches the data's average velocity and simulates well velocity volatility. Its Cagan-like money demand means that money and credit shocks cause greater velocity variation the higher is the nominal interest rate.

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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2007/5.

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Length: 21 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mnb:wpaper:2007/5

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Keywords: Velocity; business cycle; credit shocks; endogenous growth.;

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Cited by:
  1. Scheffel, Eric, 2008. "Consumption Velocity in a Cash Costly-Credit Model," Cardiff Economics Working Papers E2008/31, Cardiff University, Cardiff Business School, Economics Section.
  2. Ceri Davies & Max Gillman & Michal Kejak, 2012. "Deriving the Taylor Principle when the Central Bank Supplies Money," CEU Working Papers 2012_13, Department of Economics, Central European University, revised 23 Jul 2012.
  3. Benk, Szilárd & Gillman, Max & Kejak, Michal, 2009. "US Volatility Cycles of Output and Inflation, 1919-2004: A Money and Banking Approach to a Puzzle," CEPR Discussion Papers 7150, C.E.P.R. Discussion Papers.
  4. Max Gillman & Anton Nakov, 2009. "Monetary effects on nominal oil prices," Banco de Espa�a Working Papers 0928, Banco de Espa�a.
  5. Max Gillman & Mark N. Harris, 2009. "The Effect of Inflation on Growth - Evidence from a Panel of Transition Countries," IEHAS Discussion Papers 0912, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  6. Nao Sudo, 2011. "Accounting for the Decline in the Velocity of Money in the Japanese Economy," IMES Discussion Paper Series 11-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
  7. Gillman, Max & Kejak, Michal, 2008. "Inflation, Investment and Growth: a Banking Approach," Cardiff Economics Working Papers E2008/18, Cardiff University, Cardiff Business School, Economics Section, revised Oct 2008.
  8. Max Gillman & Michal Kejak, 2008. "Tax Evasion and Growth: a Banking Approach," IEHAS Discussion Papers 0806, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  9. Nolan, Charles & Thoenissen, Christoph, 2008. "Financial shocks and the US business cycle," SIRE Discussion Papers 2008-58, Scottish Institute for Research in Economics (SIRE).
  10. Hong, Hao, 2011. "Money, interest rates and the real activity," Cardiff Economics Working Papers E2011/18, Cardiff University, Cardiff Business School, Economics Section.
  11. Szilard Benk & Max Gillman & Michal Kejak, 2009. "A Banking Explanation of the US Velocity of Money: 1919-2004," IEHAS Discussion Papers 0923, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  12. Max Gillman & Michal Kejak, 2007. " Inflation, Financial Development and Human Capital-Based Endogenous Growth: an Explanation of Ten Empirical Findings," CDMA Conference Paper Series 0703, Centre for Dynamic Macroeconomic Analysis.

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