The Transactions Velocity of Money and Its Efficiency.

This article examines the unobservable rate of return on money balances as depending directly on transactions velocity of money. The authors provides data to support the efficient markets hyphothesis (EMH). The author contends the results have three consequences. It adds support at the macroeconomic level for the EMH and it shows that the opportunity cost of holding money balances is the rate of return on bonds. Third, since the present results support the EMH, it also supports the rational expectations hypothesis (REH) and so much of the current macroeconomic modeling must be reconsidered.