Velocity in the Long Run: Money and Structural Transformation

Mele, Antonio and Stefanski, Radoslaw (2018) Velocity in the Long Run: Money and Structural Transformation Review of Economic Dynamics, 31. pp. 393-410.

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Abstract

Monetary velocity declines as economies grow. We demonstrate that this is due to the process of structural transformation - the shift of workers from agricultural to non-agricultural production associated with rising income. A calibrated, two-sector model of structural transformation with monetary and non-monetary trade accurately generates the long run monetary velocity of the US between 1869 and 2013 as well as the velocity of a panel of 102 countries between 1980 and 2010. Three lessons arise from our analysis: 1) Developments in agriculture, rather than non-agriculture, are key in driving monetary velocity; 2) Inflationary policies are disproportionately more costly in richer than in poorer countries; and 3) Nominal prices and inflation rates are not ‘always and everywhere a monetary phenomenon’: the composition of output also influences money demand and hence the secular trends of price levels.

Item Type:	Article
Divisions :	Faculty of Arts and Social Sciences > School of Economics
Authors :	Name Email ORCID Mele, Antonio a.mele@surrey.ac.uk Stefanski, Radoslaw
Date :	1 October 2018
DOI :	10.1016/j.red.2018.09.004
Copyright Disclaimer :	© 2018. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Uncontrolled Keywords :	structural transformation, monetary shares, velocity, agricultural productivity, nonmonetary exchange
Depositing User :	Users 8 not found.
Date Deposited :	26 Sep 2018 14:37
Last Modified :	02 Apr 2020 02:08
URI:	http://epubs.surrey.ac.uk/id/eprint/849461

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