Payment Flows and the Velocity of Circulation

Ross Milbourne

Working Paper from Economics Department, Queen's University

Abstract: This paper models the relationship between transactions, prices and money at a micro-level. The relationship between cash balances and the value of transactions completed is therefore made endogenous. Even when money demand is interest inelastic, velocity responds to money supply changes because the intensity of use of each dollar changes automatically as the number of dollars in the system changes. Thus, velocity is not constant in the short-run, and the quantity theory does not obtain.

Pages: 30
Date: 1980
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:384

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