Financial Evolution and the Long-Run Behavior of Velocity: New Evidence from US Regional Data
11 Pages Posted: 6 Nov 2012
Date Written: 1991
Abstract
Innovations in the private financial sector influence the income velocity of money in an economy over the entire course of its development. In the early stages of growth, increased monetization, as manifested by the spread of the banking system, causes velocity to fall. Later, the emergence of nonbank financial intermediaries causes velocity to rise. Evidence of these patterns is found in regional demand deposit data from the United States.
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