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The Variability of Velocity of Money in a Search Model

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  • Weimin Wang
  • Shouyong Shi

Abstract

We construct a dynamic equilibrium model where there is costly search in the goods market and the labor market. Incorporating shocks to money growth and productivity, we calibrate the model to the US time series data to examine the model's quantitative predictions on aggregate variables and, in particular, on the variability of consumption velocity of money. Despite the fact that money is the only asset, the model captures most of the variability of velocity in the data. It also generates realistic predictions on the moments of other variables and provides peresistent propagation of the shocks. The model generates these results largely because costly search gives an important role to the extensive margin of trade.

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File URL: http://www.economics.utoronto.ca/public/workingPapers/tecipa-190-1.pdf
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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-190.

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Length: 54 pages
Date of creation: 13 Feb 2006
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-190

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Keywords: Velocity; Search; Inflation; Inventory; Propagation.;

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References

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Citations

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Cited by:
  1. Brian Peterson & Shouyong Shi, 2004. "Money, price dispersion and welfare," Economic Theory, Springer, vol. 24(4), pages 907-932, November.
  2. Lynne EVANS & Anamaria NICOLAE, 2008. "The Output Effect Of Stopping Inflation When Velocity Is Time Varying," Journal of Information Systems & Operations Management, Romanian-American University, vol. 2(1), pages 231-253, July.
  3. Ricardo Lagos & Guillaume Rocheteau, 2004. "Inflation, output, and welfare," Working Paper 0407, Federal Reserve Bank of Cleveland.
  4. Aleksander Berentsen & Guido Menzio & Randall Wright, 2008. "Inflation and Unemployment in the Long Run," PIER Working Paper Archive 08-012, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Aruoba, S. Boragan & Waller, Christopher J. & Wright, Randall, 2011. "Money and capital," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 98-116, March.
  6. Irina A. Telyukova & Ludo Visschers, 2009. "Precautionary Demand for Money in a Monetary Business Cycle Model," EIEF Working Papers Series 0906, Einaudi Institute for Economic and Finance (EIEF), revised Jun 2009.
  7. Zhu, Tao, 2007. "Equilibrium Concepts in the Large Household Model," MPRA Paper 7444, University Library of Munich, Germany.
  8. S. Boragan Aruoba & Christopher J. Waller & Randall Wright, 2009. "Money and capital: a quantitative analysis," Working Papers 2009-031, Federal Reserve Bank of St. Louis.
  9. Martin Menner, 2011. ""Gesell Tax" and Efficiency of Monetary Exchange," Working Papers. Serie AD 2011-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  10. Shouyong Shi, 2006. "A Microfoundation of Monetary Economics," Working Papers tecipa-211, University of Toronto, Department of Economics.

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