Summary
This paper develops a model for the velocity of the M2 money stock that simultaneously estimates the functional form and the parameters of the velocity equation. The study is based on the data since 1991, a period characterized by an abrupt shift in the velocity level. The results show that a Box-Cox model may be more appropriate than a logarithmic model for specifying a velocity function. The accepted model and the estimated coefficients should have useful implications for the policymakers.
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Extract
The Development of a Model for Estimating a Velocity Function for the Money Supply: A Tool for Policymakers
I. Introduction
A stable and predictable velocity of money has important implications for macroeconomic policy because the velocity is a link between the monetary aggregate and nominal GDP. From 1970 through the mid-1980s the Federal Reserve Board found Ml (currency plus demand deposits, traveler's checks and other checkable deposits) to be a useful g...See the full content of this document
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