Money Velocity with Interest Rate Stochastic Volatility and Exact Aggregation
AbstractThe 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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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 9803004.
Length: 22 pages
Date of creation: 04 Mar 1998
Date of revision:
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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velocity volatility nonlinearity risk;
Other versions of this item:
- William Barnett & Haiyang Xu, 2012. "Money Velocity with Interest Rate Stochastic Volatility and Exact Aggregation," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201224, University of Kansas, Department of Economics, revised Sep 2012.
- 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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