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Money Velocity with Interest Rate Stochastic Volatility and Exact Aggregation

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Author Info
William A. Barnett (Washington University in St. Louis)
Haiyang Xu (Washington University in St. Louis)

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Abstract

The determinants of money velocity are explored under various assumptions on interest rate uncertainty in a monetary general equilibrium model. It is found that the appearance of velocity function instability can be produced by overlooking interest rate stochastic volatility. In addition, when interest rates are subject to stochastic volatility, velocity is found to follow a nonlinear stochastic process. We conclude that the variances of interest rate stochastic processes are omitted variables in many studies of velocity function behavior.

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Publisher Info
Paper provided by EconWPA in its series Macroeconomics with number 9803004.

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Length: 22 pages
Date of creation: 04 Mar 1998
Date of revision:
Handle: RePEc:wpa:wuwpma:9803004

Note: Type of Document - Microsoft Word; prepared on IBM PC; pages: 22 ; figures: 2 Excel Figures Included. A revised version of this paper, with the modified title, "Stochastic Volatility in Interest Rates and Nonlinearity in Velocity," is forthcoming in a special edition of the International Journal of Systems Science
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Related research
Keywords: velocity volatility nonlinearity risk

Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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This page was last updated on 2008-8-11.

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