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Velocity in the long run : money and structural transformation

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Stefanski_EconDiscPap_1610.pdf (1.044Mb)
Date
28/07/2016
Author
Mele, Antonio
Stefanski, Radoslaw (Radek)
Keywords
Structural transformation
Monetary shares
Velocity
Agricultural productivity
Non-monetary exchange
HB Economic Theory
S Agriculture
SDG 2 - Zero Hunger
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Abstract
Monetary velocity declines as economies grow. We argue that this is due to the process of structural transformation - the shift of workers from agricultural to non-agricultural production associated with rising income. A calibrated, two-sector model of structural transformation with monetary and non-monetary trade accurately generates the long run monetary velocity of the US between 1869 and 2013 as well as the velocity of a panel of 92 countries between 1980 and 2010. Three lessons arise from our analysis: 1) Developments in agriculture, rather than non-agriculture, are key in driving monetary velocity; 2) Inflationary policies are disproportionately more costly in richer than in poorer countries; and 3) Nominal prices and inflation rates are not 'always and everywhere a monetary phenomenon': the composition of output influences money demand and hence the secular trends of price levels.
Citation
Mele , A & Stefanski , R 2016 ' Velocity in the long run : money and structural transformation ' School of Economics and Finance Discussion Paper , no. 1610 , University of St Andrews , St Andrews , pp. 1-44 .
Publication
 
ISSN
0962-4031
Type
Working or discussion paper
Rights
(c) Copyright 2016, the authors
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  • University of St Andrews Research
URL
https://ideas.repec.org/p/san/wpecon/1610.html
URI
http://hdl.handle.net/10023/9282

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