There are a few forms of money in the modern financial system, but not all of them are well known. We all know about currency (paper bills) and bank deposits (the numbers in your checking account). If you reading this blog then you also know about central bank reserves (money commercial banks use to pay each other). These are assets that are considered money in large part because they are both risk free and highly liquid. However, they cannot be …
Tag: money
In this series I will talk about dead macro concepts that refuse to die. Today’s installment of Zombie Concepts features the velocity of money – a concept often discussed but easily shown to be useless. I will draw heavily from a excellent recent IMF paper on the subject by central banking expert Peter Stella et al. Basically, the velocity of money is a useless concept because it is not stable nor mean reverting. It cannot be used to link money …