New evidence on income and the velocity of money

Graves, Philip E. (1978): New evidence on income and the velocity of money. Published in: Economic Inquiry , Vol. 16, No. 1 : pp. 53-68.

Abstract

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

• Item Type: MPRA Paper
• Language: English
• Keywords: Money demand; velocity of money; time series; cross-country; cross-sectional
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables

References

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Claycamp, H.J. The composition of consumer savings portfolios, Urbana: University of Illinois, 1963.