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The Variability of Velocity in Cash-in-Advance Models

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  • Hodrick, Robert J
  • Kocherlakota, Narayana R
  • Lucas, Deborah

Abstract

Monetary models based on cash-in-advance constraints make strong predictions about the stochastic properties of endogenous variables such as the velocity of circulation of money, the rate of inflation, and real and nominal interest rates. The authors develop numerical methods to understand these predictions because the models cannot be characterized analytically. They calibrate some cash-in-advance models using driving processes estimated from U.S. time-series data to generate model predictions that are compared to sample statistics. Formulations of the models that generate variability in velocity corresponding to the U.S. data typically fail along other dimensions. Copyright 1991 by University of Chicago Press.

Suggested Citation

  • 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 358-384, April.
  • Handle: RePEc:ucp:jpolec:v:99:y:1991:i:2:p:358-84
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    References listed on IDEAS

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    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    3. Finn, Mary G. & Hoffman, Dennis L. & Schlagenhauf, Don E., 1990. "Intertemporal asset-pricing relationships in barter and monetary economies An empirical analysis," Journal of Monetary Economics, Elsevier, pages 431-451.
    4. Hartley, Peter R, 1988. "The Liquidity Services of Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 1-24, February.
    5. Hodrick, Robert J., 1989. "Risk, uncertainty, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 433-459, May.
    6. Backus, David K. & Gregory, Allan W. & Zin, Stanley E., 1989. "Risk premiums in the term structure : Evidence from artificial economies," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 371-399, November.
    7. Kocherlakota, Narayana R., 1990. "On the 'discount' factor in growth economies," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 43-47, January.
    8. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    9. Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 919-944, October.
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