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Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks

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  • SZIL¡RD BENK
  • MAX GILLMAN
  • MICHAL KEJAK

Abstract

The paper sets the neoclassical monetary business cycle model within endogenous growth, adds exchange credit shocks, and finds that money and credit shocks explain much of the velocity variations. The role of the shocks varies across subperiods in an intuitive fashion. Endogenous growth is key to the construction of the money and credit shocks because these have similar effects on velocity, but opposite effects upon growth. The model matches the data's average velocity and simulates well velocity volatility. Its Cagan-like money demand means that money and credit shocks cause greater velocity variation, the higher is the nominal interest rate. Copyright (c) 2008 The Ohio State University.

Suggested Citation

  • Szil¡Rd Benk & Max Gillman & Michal Kejak, 2008. "Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(6), pages 1281-1293, September.
    • Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:6:p:1281-1293
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    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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