The Long-Run Behavior of Velocity: The Institutional Approach Revisited; Comments

Evidence is provided from annual data for the period 1880-1986 that institutional variables are significant determinants of velocity in the US, the UK, Canada, Sweden, and Norway. Several proxies for institutional change in the financial sector are significant determinants of the long-run velocity f...

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Bibliographic Details
Published in:Journal of policy modeling 1990-07, Vol.12 (2), p.165
Main Authors: Bordo, Michael D, Jonung, Lars, Huizinga, John
Format: Article
Language:English
Subjects:
Comparative studies
Economic models
Economic stabilization
Hypotheses
Institutional
Manycountries
Monetary theory
Regression analysis
Variables
Velocity
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Summary:Evidence is provided from annual data for the period 1880-1986 that institutional variables are significant determinants of velocity in the US, the UK, Canada, Sweden, and Norway. Several proxies for institutional change in the financial sector are significant determinants of the long-run velocity function. For the majority of countries, the long-run velocity function incorporating institutional determinants has not undergone significant change over the last 10-15 years. Out-of-sample forecasts over the last 10-15 years, based on institutional variables, are superior to those based on a benchmark long-run velocity function for a number of countries. The results suggest that failure to account for institutional change may be one factor behind the recently documented instability and decline in the predictive power of short-run velocity models incorporating dynamic adjustment and higher frequency data. In a comment, Huizinga says the evidence may be suggestive, but it should not be used to justify any strong conclusions.
ISSN:0161-8938
1873-8060