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Money Velocity in an Endogenous Growth Business Cycle with Credit Shocks
Author(s) -
BENK SZILÁRD,
GILLMAN MAX,
KEJAK MICHAL
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00157.x
Subject(s) - economics , business cycle , monetary economics , volatility (finance) , endogenous growth theory , endogenous money , velocity of money , monetary policy , keynesian economics , econometrics , economic growth , human capital
The paper sets the neoclassical monetary business cycle model within endogenous growth, adds exchange credit shocks, and finds that money and credit shocks explain much of the velocity variations. The role of the shocks varies across subperiods in an intuitive fashion. Endogenous growth is key to the construction of the money and credit shocks because these have similar effects on velocity, but opposite effects upon growth. The model matches the data's average velocity and simulates well velocity volatility. Its Cagan‐like money demand means that money and credit shocks cause greater velocity variation, the higher is the nominal interest rate.