Has there been any study looking to see if there’s a link between the velocity of money in an economy vs demographics?
Is the “secular decline” really just a measure of the age of an economies participants and the older savers automatically slow the velocity. Let’s face it Japan is leading the charge.
It will of course be materially more complex than this single factor but is it a C material contributor?
I know of no study to link the velocity to demographics. In general, the decline in the velocity is attributed to the broadening of the financial world and what money is (I.e. an increasing number of shadow banks and complex forms of money like money market funds etc)
I have no quantitative basis for question, just postulating. The problem with economics is that it's more art than science and the science part is best explained by chaos theory. The number of contributing factors materially exceeds our capacity to model any given economic metric.
That is a common argument and I am not disputing that we should use the shadow banks in the monetary aggregates. But here is the counter example. In 2019 the Bank of England started to calculate M4ex which tries to remove effects from double-counting of interbank lending while adding the impact of shadow banking.
I used that data to measure the relationship for the UK. The fit was even worse than using plain vanilla M3 or M4. However, the M4ex data only goes back a bit more than a decade so it is too early to tell if including shadow banking effects actually improved the relationship. For now, however. I remain doubtful that it does.
Has there been any study looking to see if there’s a link between the velocity of money in an economy vs demographics?
Is the “secular decline” really just a measure of the age of an economies participants and the older savers automatically slow the velocity. Let’s face it Japan is leading the charge.
It will of course be materially more complex than this single factor but is it a C material contributor?
I know of no study to link the velocity to demographics. In general, the decline in the velocity is attributed to the broadening of the financial world and what money is (I.e. an increasing number of shadow banks and complex forms of money like money market funds etc)
I have no quantitative basis for question, just postulating. The problem with economics is that it's more art than science and the science part is best explained by chaos theory. The number of contributing factors materially exceeds our capacity to model any given economic metric.
Hi Joachim
The problem may be the measure of Money, this excellent article by Jeff Snider describes the problems of measuring the monetary base in the U.S.
https://alhambrapartners.com/2021/11/15/is-m2-the-money-behind-inflation-if-not-what-is-or-isnt/
That is a common argument and I am not disputing that we should use the shadow banks in the monetary aggregates. But here is the counter example. In 2019 the Bank of England started to calculate M4ex which tries to remove effects from double-counting of interbank lending while adding the impact of shadow banking.
The data is available here: https://www.bankofengland.co.uk/statistics/details/further-details-about-m4-excluding-intermediate-other-financial-corporations-data
I used that data to measure the relationship for the UK. The fit was even worse than using plain vanilla M3 or M4. However, the M4ex data only goes back a bit more than a decade so it is too early to tell if including shadow banking effects actually improved the relationship. For now, however. I remain doubtful that it does.