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

60 Pages Posted: 21 Mar 2016

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: March 2016

Abstract

This study offers a single, consistent model that tracks the velocity of broad money (M2) since 1929, including the Great Depression, the global financial crisis, and the Great Recession. The model emphasizes the roles of changes in uncertainty and risk premia, financial innovation, and major banking regulations. Our findings suggest an enhanced role of a broad, liquid money aggregate as a policy guide during crises and their unwinding. Following crises, policymakers face the challenge of not only unwinding their balance sheet so as to prevent 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 relevant financial reforms.

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 (March 2016). NBER Working Paper No. w22100. Available at SSRN: https://ssrn.com/abstract=2752305

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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