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The Variability of Velocity of Money in a Search Model

Weimin Wang and Shouyong Shi

Working Papers from University of Toronto, Department of Economics

Abstract: We construct a dynamic equilibrium model where there is costly search in the goods market and the labor market. Incorporating shocks to money growth and productivity, we calibrate the model to the US time series data to examine the model's quantitative predictions on aggregate variables and, in particular, on the variability of consumption velocity of money. Despite the fact that money is the only asset, the model captures most of the variability of velocity in the data. It also generates realistic predictions on the moments of other variables and provides peresistent propagation of the shocks. The model generates these results largely because costly search gives an important role to the extensive margin of trade.

Keywords: Velocity; Search; Inflation; Inventory; Propagation. (search for similar items in EconPapers)
JEL-codes: D83 E30 E40 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2006-02-13
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Journal Article: The variability of velocity of money in a search model (2006) Downloads
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