Money and Velocity During Financial Crises: From the Great Depression to the Great Recession

57 Pages Posted: 17 Aug 2015

See all articles by Richard G. Anderson

Richard G. Anderson

Federal Reserve Bank of St. Louis - Research Division

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

John V. Duca

Federal Reserve Banks - Federal Reserve Bank of Dallas

Multiple version iconThere are 2 versions of this paper

Date Written: 2015-05-01

Abstract

This study models the velocity (V2) of broad money (M2) since 1929, covering swings in money [liquidity] demand from changes in uncertainty and risk premia spanning the two major financial crises of the last century: the Great Depression and Great Recession. V2 is notably affected by risk premia, financial innovation, and major banking regulations. Findings suggest that M2 provides guidance during crises and their unwinding, and that the Fed faces the challenge of not only preventing excess reserves from fueling a surge in M2, but also countering a fall in the demand for money as risk premia return to normal amid velocity shifts stemming from financial reform.

Keywords: Money demand, Financial crises, Monetary policy, Liquidity, Financial innovation

Suggested Citation

Anderson, Richard G. and Bordo, Michael D. and Duca, John V., Money and Velocity During Financial Crises: From the Great Depression to the Great Recession (2015-05-01). FRB of Dallas Working Paper No. 1503. Available at SSRN: https://ssrn.com/abstract=2643988 or http://dx.doi.org/10.24149/wp1503

Richard G. Anderson (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John V. Duca

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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