"Disciplined Systematic Global Macro Views" focuses on current economic and finance issues, changes in market structure and the hedge fund industry as well as how to be a better decision-maker in the global macro investment space.
Sunday, January 26, 2014
Velocity of money - hard to say what it tells us
There was a interesting article on the velocity of money in Business Week that suggests the low number for the velocity of money. The velocity of money is a simple calculation which has often frustrated economist who have tried to measure it and use it as a forecasting tool. There has been strong evidence that money velocity follows a random walk, so it is hard to say that the low velocity of today is any indication of a potential strong recovery. There is some suggestive evidence that velocity may slow in the early part of a recovery but this may be a result of more cash entering the economy after a recession.
Simply pit, we cannot say when this low velocity will reverse and low velocity is not causal to a higher recovery. It does tell us that pumping all of the money into the economy has not had the intended effect.
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