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Comments on Gordon, Leeper, and Zha’s “Trends in Velocity and Policy Expectations”

Staff Report 247 | Published May 1, 1998

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Comments on Gordon, Leeper, and Zha’s “Trends in Velocity and Policy Expectations”

Abstract

I argue that low-frequency movements in U.S. base velocity are well explained by standard models of money demand. The model of Gordon, Leeper, and Zha is not standard because they assume a very high interest elasticity. The positive conclusion that they reach about the model’s ability to mimic movements in velocity necessarily implies that predicted movements in interest rates are too smooth.


Published In: Carnegie-Rochester Series on Public Policy (No. 49, December 1998, pp. 305-316) https://doi.org/10.1016/S0167-2231(99)00012-3

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