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Velocity in the Long Run: Money and Structural Transformation

Antonio Mele () and Radoslaw Stefanski ()

No 201605, CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis

Abstract: 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 102 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.

Keywords: structural transformation; monetary shares; velocity; agricultural productivity; nonmonetary exchange 1 We would like to thank Martin Ellison; Alexander Berentsen; Fernando Martin; Domenico Ferraro; B (search for similar items in EconPapers)
JEL-codes: O1 O4 E4 E5 N1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2016-07-28, Revised 2017-08-01
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Related works:
Journal Article: Velocity in the Long Run: Money and Structural Transformation (2019) Downloads
Working Paper: Velocity in the Long Run: Money and Structural Transformation (2017) Downloads
Working Paper: Velocity in the Long Run: Money and Structural Transformation (2016) Downloads
Working Paper: Velocity in the Long Run: Money and Structural Transformation (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:san:cdmawp:1605

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