Velocity in the long run: money and structural transformation

Antonio Mele, Radoslaw Stefanski

    Research output: Contribution to journalArticlepeer-review

    2 Citations (Scopus)


    Monetary velocity declines as economies grow. We demonstrate that this is due to the process of structural transformation - the shift of workers from agricultural to non-agricultural production associated with rising income. A calibrated, two-sector model of structural transformation with monetary and non-monetary trade accurately generates the long run monetary velocity of the US between 1869 and 2013 as well as the velocity of a panel of 102 countries between 1980 and 2010. Three lessons arise from our analysis: 1) Developments in agriculture, rather than non-agriculture, are key in driving monetary velocity; 2) Inflationary policies are disproportionately more costly in richer than in poorer countries; and 3) Nominal prices and inflation rates are not ‘always and everywhere a monetary phenomenon’: the composition of output also influences money demand and hence the secular trends of price levels.
    Original languageEnglish
    Pages (from-to)393-410
    JournalReview of Economic Dynamics
    Early online date1 Oct 2018
    Publication statusPublished - Jan 2019


    • Structural transformation
    • Monetary shares
    • Velocity
    • Agricultural productivity
    • Non-monetary exchange


    Dive into the research topics of 'Velocity in the long run: money and structural transformation'. Together they form a unique fingerprint.

    Cite this