Open Access. Powered by Scholars. Published by Universities.®
Articles 1 - 1 of 1
Full-Text Articles in Macroeconomics
New Evidence On Income And The Velocity Of Money, Philip E. Graves
New Evidence On Income And The Velocity Of Money, Philip E. Graves
PHILIP E GRAVES
Time series and cross-country empirical results suggest that cash holding as a proportion of income rises, or equivalently that velocity falls, as income increases. Numerous cross-sectional findings at many points in time, in several countries, conclude oppositely. It is argued here that the former studies suffer from omitted variable bias by ignoring socio-demographic variables affecting the demand for cash balances. When one incorporates such demand shifters into the analysis the time series and cross-country findings are seen as consistent with the critically reexamined cross-sectional result that velocity increases with income.