Introduction

This introduction presents an overview of the key concepts discussed in the subsequent chapters of this book. The book aims to present and empirically test a coherent framework explaining the secular behaviour of the income velocity of money. It presents evidence of a U-shaped pattern of velocity for a number of industrial economies in the past 100 years and reviews existing theories of the long-run behaviour of velocity. The book also presents a coherent explanation of the U-shaped pattern based on the concept of substitution between different monetary assets induced by institutional forces. It explains a series of econometric tests and explores the Swedish monetization process and its effects on velocity over the period 1871 — 1913. The book also explores the time series properties of velocity, demonstrating that velocity for Italy, Germany, Japan, Brazil, Israel, and Chile displays a random walk without drift.