| Title: | Trends in Velocity and Policy Expectations |
| Author: | Gordon, David B.; Leeper, Eric M.; Zha, Tao |
| Author Affiliation: | Clemson U; IN U; Federal Reserve Bank of Atlanta |
| Source: | Carnegie-Rochester Conference Series on Public Policy, December 1998, v. 49, iss. 0, pp. 265-304 |
| Publication Date: | December 1998 |
| Abstract: | U.S. velocity of base money exhibits three distinct trends since 1960. After rising steadily for twenty years, it flattens out in the 1980s and falls substantially in the 1990s. This paper explores whether the observed secular movements in velocity can be accounted for exclusively by endogenous responses to changing expectations about monetary and fiscal policy. The authors use a model that includes money, nominal bonds, and capital. The model maps policy expectations into portfolio decisions, making equilibrium velocity a function of expected future money growth, tax rates, and government spending. When expectations are estimated using Bayesian updating, simulated velocity matches the trends in actual velocity surprisingly well. |
| Descriptors: | Domestic Monetary Theory; Empirical Studies Illustrating Theory Money Supply; Credit; Money Multipliers |
| Geographic Descriptors: | U.S. |
| ISSN: | 01672231 |
| Publication Type: | Journal Article |
| Availability: | http://www.elsevier.com/inca/publications/store/5/2/2/6/6/6/ index.htt |