 Interest Rates and Monetary Velocity in Australia and the United StatesM. K. Lewis The Economic Record, 1978, vol. 54, issue 1, 111-126 Abstract: Two problems have become evident in recent work on the demand for money. One is the implausibly long lags in the demand for money function, the other is a tendency for short‐run instability during the 1970s. This paper argues that these problems stem from a point raised by Milton Friedman in 1959 but neglected subsequently: namely, the failure of reference cycles in interest rates to conform in timing with cycles in velocity. The cyclical association between interest rates and velocity is examined for both Australia and the US using cross‐spectral methods, and evidence is found of the timing relationships which puzzled Friedman and led him to doubt that interest rates significantly affected the demand for money. After considering the implications of these findings, it is concluded that many models of the demand for money appear to be mis‐specified, and the two problems mentioned above are symptomatic of this. A different approach to modelling the demand for money is outlined, in which a short‐lead relationship in the money market is substituted for the long lags found by other researchers. Date: 1978 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:ecorec:v:54:y:1978:i:1:p:111-126 Ordering information: This journal article can be ordered from Access Statistics for this article The Economic Record is currently edited by Paul Miller, Glenn Otto and Martin Richardson More articles in The Economic Record from The Economic Society of Australia Contact information at EDIRC. |
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