Velocity of Circulation
Part of the The New Palgrave book series (NPA)
The velocity of circulation of money is V in the identity of exchange
which is due to Irving Fisher (1911). On the left-hand side, M is the stock of money capable of ready payment, i.e. currency and demand deposits, or, in modern parlance, M1; on the right, P is the price level and T stands for the volume of trade. PT is usually identified with total transactions at current value, which must be identically equal to total payments. All these variables are aggregates. The identity defines V as PT/M, that is the ratio of a flow of payments to the stock of money that performs them; its dimension is time−1.
$$ MV \equiv PT $$
KeywordsFederal Reserve Money Market Money Demand Informal Economy Loop Length
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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