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New evidence on income and the velocity of money

  • Graves, Philip E.

Time series and cross-country empirical results suggest that cash holding as a percentage of income rises, or alternatively that velocity falls, as income increases. Numerous cross-sectional findings at many points in time, in several countries conclude oppositely. It is argued here that the former findings suffer from omitted variable bias by ignoring socio-demographic variables affecting the demand for cash balances. When one incorporates such demand shifters into the analysis the time series and cross-country are seen as consistent with the critically reexamined result that velocity increases with income.

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File URL: http://mpra.ub.uni-muenchen.de/19899/1/MPRA_paper_19899.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19899.

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Date of creation: Jan 1978
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Handle: RePEc:pra:mprapa:19899
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