Stock prices and money velocity: a multi-country analysis

Massimo Caruso
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Massimo Caruso: Banca d'Italia, Rome Main Branch - Economic Research Unit, 00186 Rome, Italy

Empirical Economics, 2001, vol. 26, issue 4, 672 pages

Abstract: What kind of information do stock prices offer for predicting velocity? This paper develops previous work by Milton Friedman for the US economy and shows that in a panel of 25 countries a wealth effect derived from the stock market has negatively influenced the ratio of nominal income to a broad definition of money. Taking quarterly data for the period 1961-1998, the relationship holds in Japan, the UK and Switzerland; in Italy a substitution effect (away from money) has also been operating. Overall, these empirical findings indicate the presence of systematic influences of stock price fluctuations on money velocity and suggest that the repercussions of asset inflation and deflation on the behavior of monetary aggregates should be monitored.

Keywords: stock market fluctuations; asset prices volatility; demand for money; monetary policy (search for similar items in EconPapers)
JEL-codes: E41 E44 E52 (search for similar items in EconPapers)
Date: 2001-12-05
Note: received: July 1998/Final version received: November 2000
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Citations: View citations in EconPapers (13)

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