RT Journal Article
T1 Precautionary Balances and the Velocity of Circulation of Money
A1 Faig, Miquel
A1 Jerez, Belén
AB The low velocity of circulation of money implies that households hold more money than they normally spend. This behavior is explained if households face uncertain expenditure needs, so that they have a precautionary motive for holding money. We investigate this motive in a search model where households are subject to preference shocks. The model predicts that velocity is not only low but also interest elastic. The model closely fits U.S. data on velocity and interest rates (1892–2004). The empirical analysis reveals a dramatic reduction in precautionary balances toward the end of our sample, which is important for policy issues.
PB Blackwell
SN 1538-4616
YR 2007
FD 2007
LK http://hdl.handle.net/10016/5320
UL http://hdl.handle.net/10016/5320
LA eng
DS e-Archivo
RD 27 abr. 2024