Title

The velocity of US M2 in the 1990s: some further evidence

Document Type

Article

Language

eng

Format of Original

9 p.

Publication Date

9-1999

Publisher

Taylor & Francis (Routledge)

Source Publication

Applied Economics

Source ISSN

0003-6846

Abstract

This paper investigates the behaviour of M2 velocity in recent years with special emphasis on the post-1989 period. Unlike previous studies in this area, M2 velocity is analysed in the context of a small vector autoregressive (VAR) model which includes income, prices, interest rates, and money growth volatility. The hypothesis of a structural shift in M2 velocity associated with the post-1989 period is rejected by the VAR model. This suggests that the unusual behaviour of M2 velocity since 1989 may be traced to the variability in its determinants, rather than to a shift in the process generating velocity. Variance decompositions indicate that real income and the short-term opportunity cost of M2 are the most important determinants of M2 velocity. The long-term opportunity cost of M2 and the return on equities also have significant impacts on M2 velocity.

Comments

Applied Economics, Vol. 31, No. 9 (September 1999): 1137-1145. DOI.

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