The Stochastic Properties of Velocity: A New Interpretation
AbstractA number of recent studies have concluded that velocity for the United States for the past century displays the characteristics of a random walk without drift. In this study, we confirm this result for four other countries for which we have over a century of data -- Canada, the United Kingdom, Sweden and Norway. One implication of a random walk is that past changes in velocity cannot be used to predict future changes. However, this does not mean that past changes in variables that economic theory deems important determinants of velocity cannot be used to predict future changes. In this study we find that past changes in the traditional determinants of velocity - permanent income and interest rates, as well as a number of institutional variables, can be used to predict future changes in velocity.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2255.
Date of creation: May 1987
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Publication status: published as Bordo, Michael D. and Lars Jonung. "The Stochastic Properties of Velocity: Evidence for Five Countries." The Long-run Behavior of the Velocity of Circulation, ed. by Michael Bordo and Lars Jonung, pp. 135-148. New York: Cambridge University Press, 1987.
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- Faugere, Christophe, 2010. "Macrofoundations for A (Near) 2% Inflation Target," MPRA Paper 23491, University Library of Munich, Germany, revised 25 Jun 2010.
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