ABSTRACT
This chapter examines our approach using data for about eighty countries from the early 1950s to the early 1980s. Industrialized countries with well-developed financial systems should generally display a rising trend in velocity, whereas poor countries at an earlier stage of economic growth should, as a rule, have falling trends. Data from International Financial Statistics are used to calculate two measures of velocity, one for a narrow measure of money and one for a broad measure. The institutional approach suggests that the cross-section data base should give rise to a U-shaped pattern when countries are ordered by stage of economic and financial development. The numerator of the velocity ratio is gross domestic product (GDP) for most countries, but for countries for which GDP is unavailable we used national income. An inspection of the velocity curves of individual countries reveals that periods of high and rising inflation rates tend to be associated with rising velocity.
