Velocity and interest rate variability in Italy: a further test of the Friedman hypothesis

Bradley Ewing

Applied Economics Letters, 1996, vol. 3, issue 12, 775-778

Abstract: This paper examines whether interest rate variability leads to a decrease in the velocity of money in Italy. The hypothesis is tested using the Johansen cointegration technique and error-correction modelling. The empirical findings lend support to the Friedman hypothesis and help reconcile the mixed results of others regarding the hypothesis in Italy. The error-correction model results are consistent with risk-averse households holding more money, and thus reducing velocity, when faced with the uncertainty associated with interest rate variability.

Date: 1996
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DOI: 10.1080/135048596355574

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