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Money and Velocity During Financial Crises: From the Great Depression to the Great Recession

Richard Anderson (), Michael Bordo () and John Duca

No 16111, Economics Working Papers from Hoover Institution, Stanford University

Abstract: This study offers a single, consistent model that tracks the velocity of broad money (M2) since 1929, including the Great Depression, the global financial crisis, and the Great Recession. The model emphasizes the roles of changes in uncertainty and risk premia, financial innovation, and major banking regulations. Our findings suggest an enhanced role of a broad, liquid money aggregate as a policy guide during crises and their unwinding. Following crises, policymakers face the challenge of not only unwinding their balance sheet so as to prevent excess reserves from fueling a surge in M2, but also countering a fall in the demand for money as risk premia return to normal amid velocity shifts stemming from relevant financial reforms.

Keywords: money demand; financial crises; monetary policy; liquidity; financial innovation (search for similar items in EconPapers)
JEL-codes: E41 E50 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
Date: 2016-05
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Related works:
Journal Article: Money and velocity during financial crises: From the great depression to the great recession (2017) Downloads
Working Paper: Money and Velocity During Financial Crises: From the Great Depression to the Great Recession (2016) Downloads
Working Paper: Money and velocity during financial crises: from the Great Depression to the Great Recession (2015) Downloads
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