INSTITUTIONAL CHANGE AND THE VELOCITY OF MONEY - A CENTURY OF EVIDENCE

We study common features in the income velocity of money, income, and interest rates for Canada, the U.S., the U.K., Sweden and Norway using annual data from 1870. The recently developed and refined techniques of testing for cointegration are employed. The evidence suggests there is a unique long-run relationship in velocity but not in income and i nterest rates. Moreover we find that only a model which includes insti tutional change proxies is properly specified. We argue that the evide nce is best interpreted in the context of common historical developmen ts in the respective countries' financial systems.