Courtesy of CFS, here is M4 Divisia velocity (rescaled to 1967Q1=1):
Figure 1: M4 Divisia velocity (blue), M2 velocity (tan), both 1967Q1=1. NBER defined peak-to-trough recession dates shaded gray. Source: CFS, Federal Reserve, BEA, NBER, and author’s calculations.
If by stability, one means (deterministic) trend stationarity, then the answer is no.
M4 divisia velocity fails to reject unit root (ADF w/constant, trend) null, and rejects trend stationarity (KPSS). True too for conventional M2 velocity. For comparison, M2 velocity is shown in Figure 1. The same results hold for M2 velocity.
As for the first difference, I don’t think either would count as stable, even if I(0). The standard deviation for differenced M4 Divisia velocity is 0.021, for M2 is 0.006. That means q/q changes (not at ARs) standard deviation is 2.1% (!). Even pre-pandemic, the former is 0.012, the latter 0.006.
Figure 2: First log difference of M4 Divisia velocity (blue), M2 velocity (tan). NBER defined peak-to-trough recession dates shaded gray. Source: CFS, Federal Reserve, BEA, NBER, and author’s calculations.
How do you explain the variance in the velocity of money? Are people hoarding cash? Are they consuming or spending less? How does reduced velocity look in real life?
How do you explain a worthless stupid ratio? Dude – you are not an expert in monetary economics so stop pretending you are.
The thing that gets most of us about little Stupid Stevie is his complete inability to look up basic data related to his worthless questions such as this latest. It took me a minute to look about currency held by the public v. the M2 money supply. The former is less than 12% of the latter. And remember Divisia money is a broader measure than even M2.
So anyone with an IQ in the teens would have known Stupid Steve’s question was rolling on the floor laughing level of stupidity. But Stevie asked it anyway. One has to wonder why someone so utterly ignorant of even freshmen economics is on an economist blog.
This is how reduced velocity looks un real life:
https://fred.stlouisfed.org/graph/?g=1dFpE
Aside from pandemics, growth in output and prices are relatively stable. As a result, variations in monetary velocity accompany variation in money supply.
You have to forgive little Stevie as he is really upset over the fact that GDP has not collapsed. After all, M2 has declined by $1 trillion since the summer of 2022 and yet no recession as little Stevie has been predicting for almost 2 years. It seems he has not been invited onto Fox and Friends in a long time which has ruined his already pathetic little life.
Not only is velocity unstable but so is the demand for money!!