Stability of Velocity in the Group of Seven Countries: A Kalman Filter Approach

Author/Editor:

Eduard J Bomhoff

Publication Date:

September 1, 1990

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper estimates forecasting models using annual data for the income velocity of money in the G-7 countries. The predictions are conditional upon the realized value of the long-term domestic government bond rate. Such conditional forecasts did not deteriorate over the period 1980-1988 as compared with the earlier postwar period. Velocity of M1 is found to be very interest-elastic in almost all countries; velocity of M2 less so. The specifications (based on Kalman filters and smoothers) point to a non-constant (stochastic) trend in velocity, hence questioning the assumptions required for the cointegration techniques used in other research on the demand for money.

Series:

Working Paper No. 1990/080

Subject:

Demand for money Monetary aggregates Monetary base Money National accounts Personal income Velocity of money

Notes:

Also published in Staff Papers, Vol. 38, No. 3, September 1991.

English

Publication Date:

September 1, 1990

ISBN/ISSN:

9781451955392/1018-5941

Stock No:

WPIEA0801990

Pages:

34

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