The variability of velocity of money in a search model

Weimin Wang, Shouyong Shi

Research output: Contribution to journalArticle

20 Scopus citations

Abstract

We construct a dynamic equilibrium model where there is costly search in the goods market and the labor market. Incorporating shocks to money growth and productivity, we calibrate the model to the US time series data to examine the model's quantitative predictions on aggregate variables and, in particular, on the variability of consumption velocity of money. Despite the fact that money is the only asset, the model captures most of the variability of velocity in the data. It also generates realistic predictions on the moments of other variables and provides persistent propagation of the shocks. The model generates these results largely because costly search gives an important role to the extensive margin of trade. Crown

Original languageEnglish (US)
Pages (from-to)537-571
Number of pages35
JournalJournal of Monetary Economics
Volume53
Issue number3
DOIs
StatePublished - Apr 1 2006

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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