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An algorithm for estimating the volatility of the velocity of money

Alikhanov, Murat and Taylor, Leon (2013): An algorithm for estimating the volatility of the velocity of money.

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Abstract

This note develops a gauge of the volatility of money velocity, based on the quantity equation of exchange. In contrast to ad hoc regression, the gauge measures the impacts of the three determinants of velocity – money supply, output, and the price level. An application to a fast-growing transition economy, Kazakhstan, finds that at the margin, price shocks affect the volatility of velocity more than do monetary or real shocks, by several orders of magnitude.

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