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Real or nominal shock – which one does more to destabilize developing economies? The case of money velocity in Kazakhstan

Murat Alikhanov and Leon Taylor ()

Bulgarian Economic Papers from Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria // Center for Economic Theories and Policies at Sofia University St Kliment Ohridski

Abstract: Volatility in money velocity destabilizes spending and output, generating business cycles. This note develops a gauge of this volatility, based on the quantity equation of exchange. In contrast to ad hoc regression, the gauge measures the impacts on volatility of the three determinants of velocity – money supply, output, and the price level. The algorithm allows covariances among these variables. An application to a fast-growing transition economy, Kazakhstan, finds that at the margin, price shocks affect volatility more than do real shocks, by several orders of magnitude. An oil exporter, Kazakhstan may be vulnerable to the gyrating price of crude.

Keywords: real shocks; monetary shocks; monetary policy; simulations; forecasting in transitional economies (search for similar items in EconPapers)
JEL-codes: E47 E52 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2015-05, Revised 2015-05
New Economics Papers: this item is included in nep-cis, nep-cwa and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:sko:wpaper:bep-2015-06

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