Stability of Velocity in the Major Industrial Countries: A Kalman Filter Approach

Eduard Bomhoff

IMF Staff Papers, 1991, vol. 38, issue 3, 626-642

Abstract: Forecasting models are estimated using annual data for the income velocity of money in seven major industrial countries. The predictions are conditional on the realized value of the long-term domestic government bond rate. These forecasts did not deteriorate over the period 1980-88, compared with the earlier postwar period. Velocity of M1 is found to be very interest elastic in almost all countries; velocity of M2, less so. The specifications (based on Kalman filters) point to a nonconstant trend in velocity, raising questions about the assumptions required for the cointegration techniques used in other research on money demand.

JEL-codes: E41 E52 F31 (search for similar items in EconPapers)
Date: 1991
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