Changes in Wealth and the Velocity of Money

G. J. Santoni is a senior economist at the Federal Reserve Bank of St. Louis. Thomas A. Pollmann provided research assistance. ‘See, for example, Fisher (1963) who notes that: “This theory, though often crudely formulated, has been accepted by Locke, Hume, Adam Smith, Ricardo, Mill, Walker, Marshall, Hadley, Fetter, Kemmerer, and most writers on the subject.” (p. 14) See also pp. 157—59 and 296—97. More recent examples are Friedman and Schwartz (1963 and 1982). Thornton (1983) presents a nontechnical discussion of the theory. 2Using monetary policy to hit short-run stabilization objectives is problemmaticat if not impossible. See Thornton (1983) and Mankiw and Summers (1986), p.4l9, for discussions of this point. 3Rasche (1986), Mankiw and Summers (1988), Tatom (1983), Taylor (1986), Siegel and Strongin (1986) and Kopcke (1986) represent some of the recent attempts to resolve the issue, havior that velocity has exhibited in recent years can be attributed to changes in wealth.’