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Money velocity in an endogenous growth business cycle with credit shocks.

Benk, Szilard, Gillman, Max and Kejak, Michal 2007. Money velocity in an endogenous growth business cycle with credit shocks. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

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Abstract

The explanation of velocity in neoclassical monetary business cycle models relies on a goods productivity shocks to mimic the data's procyclic velocity feature; money shocks are not important; and the financial sector plays no role. This paper sets the model within endogenous growth, adds exchange credit shocks, and finds that money and credit shocks explain much of the velocity variation. The role of the shocks varies across sub-periods in an intuitive fashion. Endogenous growth is key to the construction of the money and credit shocks since these have similar effects on velocity, but opposite effects upon growth. The model matches the data's average velocity and simulates most of the velocity volatility that is found in the data. Its underlying money demand is Cagan-like in its interest elasticity, so that money and credit shocks cause greater velocity variation the higher is the nominal interest rate.

Item Type: Monograph (Working Paper)
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
Publisher: Cardiff University
Date of First Compliant Deposit: 30 March 2016
Last Modified: 06 Oct 2015 09:02
URI: http://orca.cf.ac.uk/id/eprint/77764

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