Money,output and income velocity

This paper attempts to assess empirically the contribution of three structural shocks – monetary, institutional (financial and fiscal), and technological – to output and velocity fluctuations in the national bank era and the post-1973 period. To identify these shocks we impose only long–run restrictions, derived from a monetary growth model. We find that higher money growth increases (decreases) velocity in the first (second) period, depending crucially on the resulting changes in the transactions frequency. Credit–enhancing financial or expansionary fiscal shocks have a permanent positive effect on velocity and a himp–shaped effect on output, whereas technological shocks cause velocity to decrease in the short run and output to move to a permanently higher level.