Comments on Gordon, Leeper, and Zha's trends in velocity and policy expectations
I argue that low-frequency movements in U.S. base velocity are well explained by standard models of money demand. The model of Gordon, Leeper, and Zha is not standard because they assume a very high interest elasticity. The positive conclusion that they reach about the model's ability to mimic movements in velocity necessarily implies that predicted movements in interest rates are too smooth.
|Date of creation:||1998|
|Date of revision:|
|Publication status:||Published in Carnegie-Rochester Series on Public Policy (No. 49, 1998, pp. 305-316)|
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