The Behavior of Money velocity in Low and High Inflation Countries

Hugo Rodriguez Mendizabal

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: This paper presents a general equilibrium model of money demand where the velocity of money changes in response to endogenous fluctuations in the interest rate. The parameter space can be divided into two subsets: one where velocity is constant as in standard cash-in-advance models, and another one where velocity fluctuates as in Baumol (1952). The model provides an explanation of why, for a sample of 79 countries, the correlation between the velocity of money and the inflation rate appears to be low, unlike common wisdom would suggest. The reason is the diverse transaction technologies available in different economies.

Keywords: Money Demand; Money Velocity; Cash-in-Advance (search for similar items in EconPapers)
JEL-codes: E41 (search for similar items in EconPapers)
Pages: 32
Date: 2004-01-03
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:600.04

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