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Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks

Author

Listed:
  • Szilárd Benk

    (Magyar Nemzeti Bank)

  • Max Gillman

    (Cardiff Business School)

  • Michal Kejak

    (CERGE-EI)

Abstract

The paper sets the neoclassical monetary business cycle model within endogenous growth, adds exchange credit shocks, and finds that money and credit shocks explain much of the velocity variation. The role of the shocks varies across sub-periods in an intuitive fashion. Endogenous growth is key to the construction of the money and credit shocks since these have similar effects on velocity, but opposite effects upon growth. The model matches the data's average velocity and simulates well velocity volatility. Its Cagan-like money demand means that money and credit shocks cause greater velocity variation the higher is the nominal interest rate.

Suggested Citation

  • Szilárd Benk & Max Gillman & Michal Kejak, 2007. "Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks," MNB Working Papers 2007/5, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:wpaper:2007/5
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Velocity; business cycle; credit shocks; endogenous growth.;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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