The Stochastic Properties of Velocity: A New Interpretation
A number of recent studies have concluded that velocity for the United States for the past century displays the characteristics of a random walk without drift. In this study, we confirm this result for four other countries for which we have over a century of data -- Canada, the United Kingdom, Sweden and Norway. One implication of a random walk is that past changes in velocity cannot be used to predict future changes. However, this does not mean that past changes in variables that economic theory deems important determinants of velocity cannot be used to predict future changes. In this study we find that past changes in the traditional determinants of velocity - permanent income and interest rates, as well as a number of institutional variables, can be used to predict future changes in velocity.
|Date of creation:||May 1987|
|Date of revision:|
|Publication status:||published as Bordo, Michael D. and Lars Jonung. "The Stochastic Properties of Velocity: Evidence for Five Countries." The Long-run Behavior of the Velocity of Circulation, ed. by Michael Bordo and Lars Jonung, pp. 135-148. New York: Cambridge University Press, 1987.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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- Gould, John P & Nelson, Charles R, 1974. "The Stochastic Structure of the Velocity of Money," American Economic Review, American Economic Association, vol. 64(3), pages 405-18, June.
- Gould, J. P. & Miller, M. H. & Nelson, C. R. & Upton, C. W., 1978. "The stochastic properties of velocity and the quantity theory of money," Journal of Monetary Economics, Elsevier, vol. 4(2), pages 229-248, April.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- Taylor, Dean, 1976. "Friedman's dynamic models: Empirical tests," Journal of Monetary Economics, Elsevier, vol. 2(4), pages 531-538, November.
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