Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks
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 variation. The role of the shocks varies across sub-periods in an intuitive fashion. Endogenous growth is key to the construction of the money and credit shocks since 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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Hodrick & Narayana Kocherlakota & Deborah Lucas, 1989.
"The Variability of Velocity in Cash-In-Advance Models,"
NBER Working Papers
2891, National Bureau of Economic Research, Inc.
- 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.
- Gillman Max K & Yerokhin Oleg, 2005. "Ramsey-Friedman Optimality with Banking Time," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-24, July.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- Stiroh, Kevin J & Strahan, Philip E, 2003. " Competitive Dynamics of Deregulation: Evidence from U.S. Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 801-828, October.
- Gillman, Max, 1993. "The welfare cost of inflation in a cash-in-advance economy with costly credit," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 97-115, February.
- Hamilton, James D., 1989. "The long-run behavior of the velocity of circulation : A review essay," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 335-344, March.
- Gillman M. & Siklos & P.L.Silver & J.L., 1996.
"Money Velocity with Costly Credit,"
Department of Economics - Working Papers Series
515, The University of Melbourne.
- Wang, Weimin & Shi, Shouyong, 2006.
"The variability of velocity of money in a search model,"
Journal of Monetary Economics,
Elsevier, vol. 53(3), pages 537-571, April.
- Weimin Wang & Shouyong Shi, 2006. "The Variability of Velocity of Money in a Search Model," Working Papers tecipa-190, University of Toronto, Department of Economics.
- Clark, Jeffrey A, 1984. "Estimation of Economies of Scale in Banking Using a Generalized Functional Form," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 53-68, February.
- Basu, Parantap & Dua, Pami, 1996. "The behavior of velocity and nominal interest rates in a cash-in-advance model," Journal of Macroeconomics, Elsevier, vol. 18(3), pages 463-478.
- King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-380, June.
When requesting a correction, please mention this item's handle: RePEc:mnb:wpaper:2007/5. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lorant Kaszab)
If references are entirely missing, you can add them using this form.