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The Variability of Velocity of Money in a Search Model

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Author Info
Weimin Wang
Shouyong Shi

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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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Publisher 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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Related research
Keywords: Velocity; Search; Inflation; Inventory; Propagation.;

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Find related papers by JEL classification:
E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Hodrick, Robert J & Kocherlakota, Narayana R & Lucas, Deborah, 1991. "The Variability of Velocity in Cash-in-Advance Models," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 358-84, April. [Downloadable!] (restricted)
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  3. Shi, Shouyong, 1998. "Search for a Monetary Propagation Mechanism," Journal of Economic Theory, Elsevier, vol. 81(2), pages 314-352, August. [Downloadable!] (restricted)
    Other versions:
  4. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November. [Downloadable!] (restricted)
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  6. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Hornstein, Andreas, 1993. "Monopolistic competition, increasing returns to scale, and the importance of productivity shocks," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 299-316, June. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. repec:bep:maccon:v:6:y:2006:i:1:p:1384-1384 is not listed on IDEAS
  2. Aleksander Berentsen & Guido Menzio & Randall Wright, 2009. "Inflation and Unemployment in the Long Run," Kiel Working Papers 1501, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  3. Ricardo Lagos & Guillaume Rocheteau, 2004. "Inflation, output, and welfare," Working Paper 0407, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  4. Shouyong Shi, 2006. "A Microfoundation of Monetary Economics," Working Papers tecipa-211, University of Toronto, Department of Economics. [Downloadable!]
  5. Telyukova, Irina A. & Visschers, Ludo, 2009. "Precautionary Demand for Money in a Monetary Business Cycle Model," MPRA Paper 15622, University Library of Munich, Germany. [Downloadable!]
  6. Brian Peterson & Shouyong Shi, 2006. "Money, Price Dispersion and Welfare," Working Papers tecipa-191, University of Toronto, Department of Economics. [Downloadable!]
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  7. Zhu, Tao, 2007. "Equilibrium Concepts in the Large Household Model," MPRA Paper 7444, University Library of Munich, Germany. [Downloadable!]
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  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. [Downloadable!]
  9. S. Boragan Aruoba & Christopher J. Waller & Randall Wright, 2007. "Money and capital," Working Paper 0714, Federal Reserve Bank of Cleveland. [Downloadable!]
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  10. Benk, Szilárd & Gillman, Max & Kejak, Michal, 2007. "Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks," Cardiff Economics Working Papers E2007/14, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
    Other versions:
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