OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
The Demand for Money and Velocity in Major OECD Countries
In recent years the behaviour of the income velocity of money in major OECD economies has displayed considerable volatility for both narrow and broad monetary aggregates (Table 1). Velocity in a number of large OECD economies, for example, fell sharply in 1982. Most notably, declines in the income velocity of M1, M2 and M3 in the United States of 2.3, 4.9 and 5.9 per cent, respectively, were large by historical standards. Such movements in velocity may arise as a consequence of changes in money demand in two important ways:
- they may result from movements along the money demand function, as the normal implication of changes in its interest rate and inflation expectations arguments; and
- the money demand function itself may shift (money demand instability), leading to unpredictable changes in velocity.
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