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Federal Reserve Bank of Dallas
Working Papers
Money and velocity during financial crises: from the Great Depression to the Great Recession
Richard G. Anderson
Michael D. Bordo
John V. Duca
Abstract

This study models the velocity (V2) of broad money (M2) since 1929, covering swings in money [liquidity] demand from changes in uncertainty and risk premia spanning the two major financial crises of the last century: the Great Depression and Great Recession. V2 is notably affected by risk premia, financial innovation, and major banking regulations. Findings suggest that M2 provides guidance during crises and their unwinding, and that the Fed faces the challenge of not only preventing excess reserves from fueling a surge in M2, but also countering a fall in the demand for money as risk premia return to normal amid velocity shifts stemming from financial reform.


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Richard G. Anderson & Michael D. Bordo & John V. Duca, Money and velocity during financial crises: from the Great Depression to the Great Recession, Federal Reserve Bank of Dallas, Working Papers 1503, 01 May 2015, revised 01 May 2015.
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Keywords: Money demand; Financial crises; Monetary policy; Liquidity; Financial innovation
DOI: 10.24149/wp1503
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Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

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