THE THEORY AND MEASUREMENT OF CASH PAYMENTS; A CASE STUDY OF THE NETHERLANDS

Abstract: One of the more intractable problems in the area of monetary economics is the measurement of cash payments. Whereas the stock of currency in circulation [C] is well defined and readily measured, the transactions velocity of currency [Vc] (the average number of times currency turns over in any given period) is difficult to measure. This paper examines alternative methods for estimating the average velocity of currency and the denomination specific velocity of cash employing data for the Netherlands. Estimates of the volume of cash payments are necessary to meaningfully measure the volume of total payments [MV] in an economy and hence, the total volume of transactions [PT]. Once the volume of cash payments is known, it is possible to employ Fisher’s equation of exchange [MV=PT] as a more general conceptual and empirical alternative to Keynes’ more limited income-expenditure [Y= C+I+G] identity.

Keywords: Cash payments; Velocity of currency; Equation of exchange; total transactions; underground economy. (search for similar items in EconPapers)
JEL-codes: E1 E4 E5 B4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-mac and nep-mon
Date: 2005-01-20
Note: Type of Document - pdf; pages: 32
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