A Reconsideration of Monetary Velocity: The Effects of the Housing and Stock Markets

This paper examines the evidence for stability in the income-velocity of money by allowing for the effects of the housing and stock markets. It is shown that much of the hitherto unexplained behavior of the income velocity (the so-called "velocity puzzle") can be explained by housing transactions as well as the returns on housing. Stock market transactions and wealthy effects of changes in stock prices are also shown to have a statistically significant effect on the income-velocity of money.