Velocity of Money in Korea, Japan, the United Kingdom and the United States of America: 1962-2011

Velocity of Money in Korea, Japan, the United Kingdom and the United States of America: 1962-2011

Classical economists deny the dependence of money demand on interest rate and view thevelocity of money as reasonably constant in the short run. Keynesians reckon that thedemand for money critically depends on the interest rate and so does the velocity of money. Monetarists view the velocity of money as reasonably stable even in the long run. This paperanalyzed the time paths of velocity of money for the past 50 years in Korea, Japan, theUnited Kingdom (UK), and the United States of America (US). The main findings are asfollows. First, discount rate positively affected the money velocity's rate of change only inKorea. Second, inflation rates (CPI or PPI) did not have any effect on the money velocityin any country when included individually in the regression. Third, money growth rates havestrong negative effect, while GDP growth rates have strong positive effect on the moneyvelocity in all the four countries considered in this paper. Fourth, the coefficients on theGDP growth rates are greater than unity in the UK and the US. In sub-periods regressions,slightly different results were obtained.