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New Evidence on Income and the Velocity of Money

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  • Graves, Philip E

Abstract

Time series and cross-country empirical results suggest that cash holding as a percentage of income rises, or alternatively that velocity falls, as income increases. Numerous cross-sectional findings at many points in time, in several countries conclude oppositely. It is argued here that the former findings suffer from omitted variable bias by ignoring socio-demographic variables affecting the demand for cash balances. When one incorporates such demand shifters into the analysis the time series and cross-country are seen as consistent with the critically reexamined result that velocity increases with income.
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Suggested Citation

  • Graves, Philip E, 1978. "New Evidence on Income and the Velocity of Money," Economic Inquiry, Western Economic Association International, vol. 16(1), pages 53-68, January.
    • Handle: RePEc:oup:ecinqu:v:16:y:1978:i:1:p:53-68
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    Cited by:

    1. Graves, Philip E., 1979. "Relative Risk Aversion: Increasing or Decreasing?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(2), pages 205-214, June.
    2. Graves, Philip E, 1980. "The Velocity of Money: Evidence for the U.K., 1911-1966," Economic Inquiry, Western Economic Association International, vol. 18(4), pages 631-639, October.
    3. James Boughton, 1992. "International comparisons of money demand," Open Economies Review, Springer, vol. 3(3), pages 323-343, October.

    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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