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The Behavior of Money Velocity in High and Low Inflation Countries

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  • Mendizabal, Hugo Rodriguez

Abstract

This paper presents a general equilibrium model of money demand where the velocity of money changes in response to endogenous fluctuations in the interest rate. The parameter space can be divided into two subsets: one where velocity is constant as in standard cash-in-advance models, and another one where velocity fluctuates as in Baumol (1952). The model provides an explanation of why, for a sample of 79 countries, the correlation between the velocity of money and the inflation rate appears to be low, unlike common wisdom would suggest. The reason is the diverse transaction technologies available in different economies.

Suggested Citation

  • Mendizabal, Hugo Rodriguez, 2006. "The Behavior of Money Velocity in High and Low Inflation Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 209-228, February.
    • Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:1:p:209-228
    DOI: 10.1353/mcb.2006.0020
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    Citations

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    Cited by:

    1. Andre C. Silva, 2011. "Individual and aggregate money demands," Nova SBE Working Paper Series wp557, Universidade Nova de Lisboa, Nova School of Business and Economics.
    2. Joakim Westerlund & Mauro Costantini, 2009. "Panel cointegration and the neutrality of money," Empirical Economics, Springer, vol. 36(1), pages 1-26, February.
    3. E. EHRHART & Alexandru MINEA & Patrick VILLIEU, 2009. "Deficits, Seignorage and the Growth Laffer Curve in Developing Countries," LEO Working Papers / DR LEO 118, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    4. Jacky Mallett & Charles Keen, 2012. "Does GDP measure growth in the economy or simply growth in the money supply?," Papers 1208.0642, arXiv.org.
    5. Ehrhart, Hélène & Minea, Alexandru & Villieu, Patrick, 2014. "Debt, seigniorage, and the Growth Laffer Curve in developing countries," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 199-210.
    6. André C. Silva, 2012. "Rebalancing Frequency and the Welfare Cost of Inflation," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 153-183, April.

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