Money Velocity with Interest Rate Stochastic Volatility and Exact Aggregation

William Barnett and Haiyang Xu
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Haiyang Xu: Washington University in St. Louis

Macroeconomics from University Library of Munich, Germany

Abstract: The determinants of money velocity are explored under various assumptions on interest rate uncertainty in a monetary general equilibrium model. It is found that the appearance of velocity function instability can be produced by overlooking interest rate stochastic volatility. In addition, when interest rates are subject to stochastic volatility, velocity is found to follow a nonlinear stochastic process. We conclude that the variances of interest rate stochastic processes are omitted variables in many studies of velocity function behavior.

Keywords: velocity; volatility; nonlinearity; risk (search for similar items in EconPapers)
JEL-codes: C5 E3 E4 E5 (search for similar items in EconPapers)
Pages: 22 pages
Date: 1998-03-04
New Economics Papers: this item is included in nep-pke
Note: Type of Document - Microsoft Word; prepared on IBM PC; pages: 22 ; figures: 2 Excel Figures Included. A revised version of this paper, with the modified title, "Stochastic Volatility in Interest Rates and Nonlinearity in Velocity," is forthcoming in a special edition of the International Journal of Systems Science
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Related works:
Working Paper: Money Velocity with Interest Rate Stochastic Volatility and Exact Aggregation (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:9803004

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