The Stochastic Properties of Velocity: a New Interpretation

22 Pages Posted: 8 Aug 2007 Last revised: 1 Sep 2010

See all articles by Michael D. Bordo

Michael D. Bordo

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

Lars Jonung

Lund University - Dept. of Economics

Date Written: May 1987

Abstract

A number of recent studies have concluded that velocity for the United States for the past century displays the characteristics of a random walk without drift. In this study, we confirm this result for four other countries for which we have over a century of data -- Canada, the United Kingdom, Sweden and Norway. One implication of a random walk is that past changes in velocity cannot be used to predict future changes. However, this does not mean that past changes in variables that economic theory deems important determinants of velocity cannot be used to predict future changes. In this study we find that past changes in the traditional determinants of velocity - permanent income and interest rates, as well as a number of institutional variables, can be used to predict future changes in velocity.

Suggested Citation

Bordo, Michael D. and Jonung, Lars, The Stochastic Properties of Velocity: a New Interpretation (May 1987). NBER Working Paper No. w2255. Available at SSRN: https://ssrn.com/abstract=347036

Michael D. Bordo (Contact Author)

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

Lars Jonung

Lund University - Dept. of Economics ( email )

Box 7080
Lund, 22007
Sweden

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