Velocity of Circulating Money
A Velocity of Circulating Money is an economic rate measure that quantifies how frequently a unit of currency is used in a given period of time.
- Context:
- It can (often) be measured as a ratio of GNP to a country's total supply of money.
- …
- Counter-Example(s):
- See: Currency Crisis, Demand for Money, Fisher Equation.
References
2014
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/velocity_of_money Retrieved:2014-10-12.
- The velocity of money (also called the velocity of circulation of money) refers to how fast money passes from one holder to the next. It can refer to the income velocity of money, which is the frequency at which the average unit of currency is used to purchase newly domestically-produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. Alternatively and less frequently, it can refer to the transactions velocity of money, which is the frequency with which the average unit of currency is used in any kind of transaction in which it changes possession—not only the purchase of newly produced goods, but also the purchase of financial assets and other items.
If the velocity of money is increasing, then transactions are occurring between individuals more frequently. Although once thought to be constant,it is now understood that the velocity of money changes over time and is influenced by a variety of factors. [1]
When the period is understood, the velocity may be presented as a pure number; otherwise it should be given as a pure number divided by time.
- The velocity of money (also called the velocity of circulation of money) refers to how fast money passes from one holder to the next. It can refer to the income velocity of money, which is the frequency at which the average unit of currency is used to purchase newly domestically-produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. Alternatively and less frequently, it can refer to the transactions velocity of money, which is the frequency with which the average unit of currency is used in any kind of transaction in which it changes possession—not only the purchase of newly produced goods, but also the purchase of financial assets and other items.
- ↑ Mishkin, Frederic S. The Economics of Money, Banking, and Financial Markets. Seventh Edition. Addison–Wesley. 2004. p.520.
2013
- http://www.investopedia.com/terms/v/velocity.asp
- QUOTE: The rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period of time. Velocity of money is usually measured as a ratio of GNP to a country's total supply of money.
Velocity is important for measuring the rate at which money in circulation is used for purchasing goods and services. This helps investors gauge how robust the economy is, and is a key input in the determination of an economy's inflation calculation. Economies that exhibit a higher velocity of money relative to others tend to be further along in the business cycle and should have a higher rate of inflation, all things held constant.
- QUOTE: The rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period of time. Velocity of money is usually measured as a ratio of GNP to a country's total supply of money.
2008
- Christian Dreger, and Jürgen Wolters. (2008). “Money Velocity and Asset Prices in the Euro Area."
- ABSTACT: Monetary growth in the euro area has exceeded its target since several years. At the same time, the money demand function seems to be increasingly unstable if more recent data are used. If the link between money balances and the macroeconomy is fragile, the rationale of monetary aggregates in the ECB strategy has to be doubted. In fact, a rise in the income elasticity after 2001 can be observed, and may reflect the exclusion of real and financial wealth in conventional specifications of money demand. This presumption is explored by means of a cointegration analysis. To separate income from wealth effects, the specification in terms of money velocity is preferred. Evidence for the presence of wealth in the long run relationship is provided. In particular, both stock and house prices have exerted a negative impact on velocity after 2001 and lead to almost identical equilibrium errors. The extended error correction model is stable over the entire sample period and survive a battery of specification tests.