Some Qualms about the Test of the Institutional Hypothesis of the Long-run Behavior of Velocity

Baldev Raj and Pierre Siklos

Economic Inquiry, 1988, vol. 26, issue 3, 537-45

Abstract: This paper expresses econometric qualms about M. D. Bordo and L. Jonung's (1981) analysis of long-run volocity. They did not recognize that, for U.S. and Canadian data, the log of velocity has a unit root. Hence, estimation of a log-level regression may produce spurious regressions. When Bordo and Jonung's volocity equation is reestimated in rate-of-change form, permanent income is significant, contrary to their earlier conclusion. Moreover, using this approach gives a stronger result for one of the institutional variables in the velocity function, in the sense that the remaining variables become more significant. Copyright 1988 by Oxford University Press.

Date: 1988
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