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The velocity of money in a life-cycle model

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  • Wang, Yougui
  • Qiu, Hanqing

Abstract

The determinants of the velocity of money have been examined based on life-cycle hypothesis. The velocity of money can be expressed by reciprocal of the average value of holding time that is defined as interval between participating exchanges for one unit of money. This expression indicates that the velocity is governed by behavior patterns of economic agents and opens a way for constructing micro-foundation of it. It is found that time pattern of income and expense for a representative individual can be obtained from a simple version of life-cycle model, and average holding time of money resulted from the individual's optimal choice depends on the expected length of relevant planning periods.

Suggested Citation

  • Wang, Yougui & Qiu, Hanqing, 2005. "The velocity of money in a life-cycle model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 353(C), pages 493-500.
    • Handle: RePEc:eee:phsmap:v:353:y:2005:i:c:p:493-500
    DOI: 10.1016/j.physa.2005.01.053
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    References listed on IDEAS

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    1. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
    2. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    3. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Yougui Wang & Ning Ding & Ning Xi, 2005. "Prospects for Money Transfer Models," Papers physics/0507161, arXiv.org.
    2. Xing, Xiaoyun & Xiong, Wanting & Chen, Liujun & Chen, Jiawei & Wang, Yougui & Stanley, H. Eugene, 2018. "Money circulation and debt circulation: A restatement of quantity theory of money," Economics Discussion Papers 2018-1, Kiel Institute for the World Economy (IfW Kiel).
    3. Barrio, Rafael A. & Govezensky, Tzipe & Ruiz-Gutiérrez, Élfego & Kaski, Kimmo K., 2017. "Modelling trading networks and the role of trust," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 471(C), pages 68-79.
    4. Yougui Wang & Ning Ding, 2005. "Dynamic Process of Money Transfer Models," Papers physics/0507162, arXiv.org.
    5. Bamadev Paudel, 2017. "Alleviating Poverty through Job Creation: Quantity Equation of Money may Come into Play," Journal of Development Innovations, KarmaQuest International, vol. 1(1), pages 84-113, February.
    6. repec:kqi:journl:2017-1-5 is not listed on IDEAS

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