The relationship between velocity and interest rate in the cash in advance model

Date

2010

Editor(s)

Advisor

Arnwine, Neil

Supervisor

Co-Advisor

Co-Supervisor

Instructor

Series

Abstract

This thesis considers the long run relationship between velocity of money and nominal interest rate with the proposed Cash in Advance model. In the long run analysis, the steady state relationship between velocity and interest rate in CIA model is modeled as a regression. The regression results by using level data are found to be spurious which is caused by non-stationary series. In order to solve this problem, the first differences of the variables are used in the regression. When the drawbacks of using the first differences are taken into consideration, Fully Modified OLS is preferred as the estimation method to find the long run relationship. According to the estimation results, the welfare cost of inflation is found.

Source Title

Publisher

Course

Other identifiers

Book Title

Degree Discipline

Economics

Degree Level

Master's

Degree Name

MA (Master of Arts)

Citation

Published Version (Please cite this version)

Language

English

Type