THE INCOME VELOCITY OF MONEY UNDER ALTERNATIVE MONETARY-POLICY RULES - ONE REMARK

Using a standard stochastic macroeconomic model, the analysis shows that the variance of velocity differs under alternative monetary policy rules. In contrast to the expectations of plausible considerations, activist monetary policy rules that have been advocated partly in response to the increased volatility of velocity during the 1980s, may, in fact, further enlarge the volatility of velocity. However, this observation does not effect the existing pros and cons of alternative rules.