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

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Creator Series Issue number
  • 247
Date Created
  • 1998-05
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.

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  • Federal Reserve Bank of Minneapolis. Research Department
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  • Federal Reserve Bank of Minneapolis
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