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Stability of Velocity in the Group of Seven Countries; A Kalman Filter Approach


  • Eduard J Bomhoff


This paper estimates forecasting models using annual data for the income velocity of money in the G-7 countries. The predictions are conditional upon the realized value of the long-term domestic government bond rate. Such conditional forecasts did not deteriorate over the period 1980-1988 as compared with the earlier postwar period. Velocity of M1 is found to be very interest-elastic in almost all countries; velocity of M2 less so. The specifications (based on Kalman filters and smoothers) point to a non-constant (stochastic) trend in velocity, hence questioning the assumptions required for the cointegration techniques used in other research on the demand for money.

Suggested Citation

  • Eduard J Bomhoff, 1990. "Stability of Velocity in the Group of Seven Countries; A Kalman Filter Approach," IMF Working Papers 90/80, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:90/80

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    References listed on IDEAS

    1. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 249-283.
    2. Barro, Robert J, 1999. "Notes on Growth Accounting," Journal of Economic Growth, Springer, vol. 4(2), pages 119-137, June.
    3. E. Paul Durrenberger, 2005. "Labour," Chapters,in: A Handbook of Economic Anthropology, chapter 8 Edward Elgar Publishing.
    4. Alberto Musso & Thomas Westermann, 2005. "Assessing potential output growth in the euro area - a growth accounting perspective," Occasional Paper Series 22, European Central Bank.
    5. Albers, Ronald & Vijselaar, Focco, 2002. "New technologies and productivity growth in the euro area," Working Paper Series 0122, European Central Bank.
    6. Yisheng Bu, 2006. "Fixed capital stock depreciation in developing countries: Some evidence from firm level data," Journal of Development Studies, Taylor & Francis Journals, vol. 42(5), pages 881-901.
    7. Barry P. Bosworth & Susan M. Collins, 2003. "The Empirics of Growth: An Update," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 113-206.
    8. Dani Rodrik & Arvind Subramanian, 2004. "Why India Can Grow At 7 Percent a Year or More; Projections and Reflections," IMF Working Papers 04/118, International Monetary Fund.
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    Cited by:

    1. Abdul Qayyum & Faiz Bilquees, 2005. "P-Star Model: A Leading Indicator of Inflation for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(2), pages 117-129.


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