Velocity in the Long Run: Money and Structural Transformation
Radoslaw Stefanski ()
No 168, 2017 Meeting Papers from Society for Economic Dynamics
Monetary velocity declines as economies grow. We argue that this is due to the process of structural transformation - the shift of workers from agricultural to non-agricultural production associated with rising income. A calibrated, two-sector model of structural transformation with monetary and non-monetary trade accurately generates the long run monetary velocity of the US between 1869 and 2013 as well as the velocity of a panel of 92 countries between 1980 and 2010. Three lessons arise from our analysis: 1) Developments in agriculture, rather than non-agriculture, are key in driving monetary velocity; 2) Inflationary policies are disproportionately more costly in richer than in poorer countries; and 3) Nominal prices and inflation rates are not ‘always and everywhere a monetary phenomenon’: the composition of output influences money demand and hence the secular trends of price levels.
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Journal Article: Velocity in the Long Run: Money and Structural Transformation (2019)
Working Paper: Velocity in the Long Run: Money and Structural Transformation (2017)
Working Paper: Velocity in the Long Run: Money and Structural Transformation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:168
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