This paper examines whether interest rate variability leads to a decrease in the velocity of money in Italy. The hypothesis is tested using the Johansen cointegration technique and error-correction modelling. The empirical findings lend support to the Friedman hypothesis and help reconcile the mixed results of others regarding the hypothesis in Italy. The error-correction model results are consistent with risk-averse households holding more money, and thus reducing velocity, when faced with the uncertainty associated with interest rate variability.
|Number of pages||4|
|Journal||Applied Economics Letters|
|State||Published - Dec 1996|