The Global Velocity Curve 1952-1982
Michael D. Bordo, Lars Jonung
NBER Working Paper No. 2074 (Also Reprint No. r1067)
This paper provides evidence and an explanation for an empirical regularity in the income velocity of money. Based on a cross country comparison in the post World War II period of 84 countries arrayed from very low to very high per capita income, velocity displays a U shaped pattern. This observed cross country pattern is very similar to one observed in an earlier study by the authors for a number of advanced countries for over a century. The U-shaped pattern of velocity behavior is explained by an approach which stresses the influence of institutional factors. On a secular basis the downward trend in velocity is due to a process of monetization while the upward trend is explained by financial development. On a cross country basis industrialized countries with we1 1 developed financial systems should generally display a rising 'trend in velocity while poor countries at an earlier stage of economics growth should as a rule have falling trends. Velocity in economies "in between" should exhibit a fairly flat pattern with a weak positive or negative trend.
Published: Bordo, Michael D. and Lars Jonung (eds.) The Long-run Behavior of the Velocity of Circulation: The International Evidence. New York: Cambridge University Press, 1987.