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Macroeconomics Commons

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Public Economics

School of Education and Human Development at the University of Colorado Denver

Money demand

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Full-Text Articles in Macroeconomics

The Velocity Of Money: Evidence For The U.K. 1911-1966, Philip E. Graves Jan 1980

The Velocity Of Money: Evidence For The U.K. 1911-1966, Philip E. Graves

PHILIP E GRAVES

This paper presents secular evidence on the income velocity of money, exploring the issue of the superiority of money balances. Under a variety of specifications and statistical techniques, employed on both traditional and non-traditional variables, the Friedman assertion that money is a superior good is found to lack empirical support. Indeed, income elasticities of demand for M2 balances of .3 to .45 are observed, elasticities much smaller than previously thought.


New Evidence On Income And The Velocity Of Money, Philip E. Graves Jan 1978

New Evidence On Income And The Velocity Of Money, Philip E. Graves

PHILIP E GRAVES

Time series and cross-country empirical results suggest that cash holding as a proportion of income rises, or equivalently 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 studies 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 findings are seen as consistent with the critically reexamined cross-sectional result that velocity increases with income.