Velocity in the Long Run: Money and Structural Transformation
Monetary velocity declines as economies grow. We argue that this is due to the process of structural transformation - the shift of workers from agricultural to non-agricultural production associated with rising income. A calibrated, two-sector model of structural transformation with monetary and non-monetary trade accurately generates the long run monetary velocity of the US between 1869 and 2013 as well as the velocity of a panel of 92 countries between 1980 and 2010. Three lessons arise from our analysis: 1) Developments in agriculture, rather than non-agriculture, are key in driving monetary velocity; 2) Inflationary policies are disproportionately more costly in richer than in poorer countries; and 3) Nominal prices and inflation rates are not ‘always and everywhere a monetary phenomenon’: the composition of output influences money demand and hence the secular trends of price levels.
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- Kuralbayeva, Karlygash & Stefanski, Radoslaw, 2013.
"Windfalls, structural transformation and specialization,"
Journal of International Economics,
Elsevier, vol. 90(2), pages 273-301.
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- Radoslaw Stefanski, 2017. "Dirty Little Secrets: Inferring Fossil-Fuel Subsidies from Patterns in Emission Intensities," Discussion Paper Series, Department of Economics 201705, Department of Economics, University of St. Andrews.
- Radoslaw Stefanski, 2017. "Dirty Little Secrets: Inferring Fossil-Fuel Subsidies from Patterns in Emission Intensities," CDMA Working Paper Series 201702, Centre for Dynamic Macroeconomic Analysis.
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