TY  - JOUR
AU  - Hodrick,Robert J.
AU  - Kocherlakota,Narayana
AU  - Lucas,Deborah
TI  - The Variability of Velocity in Cash-In-Advance Models
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2891
PY  - 1989
Y2  - March 1989
UR  - http://www.nber.org/papers/w2891
L1  - http://www.nber.org/papers/w2891.pdf
N1  - Author contact info:
Robert J. Hodrick
Graduate School of Business
Columbia University
3022 Broadway
New York, NY 10027
Tel: 212/854-3413
Fax: 212/316-9219
E-Mail: rh169@columbia.edu

Narayana R. Kocherlakota
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55401
Tel: 612-204-5444
E-Mail: narayana.kocherlakota@mpls.frb.org

Deborah J. Lucas
MIT Sloan School of Management
100 Main Street, E62-640
Cambridge, MA 02142
Tel: 617/715-4816
E-Mail: dlucas@mit.edu
AB  - Early cash-in-advance models have the feature that the cash-in-advance constraint always binds, implying that the velocity of money is constant. Lucas (1984) and Svensson (1985) propose a change in information structure that potentially allows velocity to vary. By calibrating a version of these models using a new solution algorithm, and using U.S. time series data on consumption growth and money growth, we find that in practice the cash-in-advance constraint almost always binds. This result is robust to changes in the forcing process, the inclusion of credit goods along with cash goods, various preference specifications, and changes in the precision of the agents' information. We conclude that there is little practical gain in using these more complicated informational specifications in future applications of a cash-in-advance technology.
ER  -