Real or nominal shock – which one does more to destabilize developing economies? The case of money velocity in Kazakhstan
Real or nominal shock – which one does more to destabilize developing economies? The case of money velocity in Kazakhstan

Summary/Abstract: Volatility in money velocity destabilizes spending and output, generating business cycles. This note develops a gauge of this volatility, based on the quantity equation of exchange. In contrast to ad hoc regression, the gauge measures the impacts on volatility of the three determinants of velocity – money supply, output, and the price level. The algorithm allows covariances among these variables. An application to a fast-growing transition economy, Kazakhstan, finds that at the margin, price shocks affect volatility more than do real shocks, by several orders of magnitude. An oil exporter, Kazakhstan may be vulnerable to the gyrating price of crude.

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