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NEW EVIDENCE ON INCOME AND THE VELOCITY OF MONEY
Author(s) -
GRAVES PHILIP E.
Publication year - 1978
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1978.tb00492.x
Subject(s) - economics , cash , econometrics , variable (mathematics) , cross country , empirical evidence , demographic economics , monetary economics , macroeconomics , mathematics , mathematical analysis , philosophy , epistemology
Time series and cross‐country empirical results suggest that cash holding as a proportion of income rises, or equivalently 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 sociodemographic variables affecting the demand for cash balances. When one incorporates such demand shifters into the analysis the time series and cross‐country findings are seen as consistent with the critically reexamined cross sectional result that velocity increases with income.