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

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

Related information Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department
  • Federal Reserve Bank of Minneapolis
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