When Markets Fail: Asset Prices, Government Expenditures, and the Velocity of Money

Christopher Warburton

Applied Econometrics and International Development, 2013, vol. 13, issue 2, 73-92

Abstract: This paper examines the contributions of financial and macroeconomic variables to the revitalisation of a depressed US economy. Using time series data from 1957 to 2011 and a binary logistic regression model, it finds that government consumption expenditure and gross investment, real personal consumption expenditure, and the velocity of money provide robust possibilities for improving economic growth after the failure of financial and real markets. It concludes that policies that are oriented towards the revitalisation of economic growth should seriously consider the speed at which money circulates in contradistinction to the money stock and asset prices or the wealth effect.

Keywords: Asset Prices; Liquidity Trap; Logit; Market Failure; Velocity of Money. (search for similar items in EconPapers)
JEL-codes: E1 E12 E32 E44 E51 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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