Velocity and interest rate variability in Italy: A further test of the Friedman hypothesis

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Abstract

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.

Original languageEnglish
Pages (from-to)775-778
Number of pages4
JournalApplied Economics Letters
Volume3
Issue number12
DOIs
StatePublished - Dec 1996

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