Article: Friedman's money supply volatility hypothesis: some international evidence.

Milton Friedman (1983, 1984) has explained the decline in income velocity in the United States in the early 1980s in terms of developments expanding the money supply - specifically that the cause of the decline was more volatile money supply growth in the 1980s which "increased the degree of perceived uncertainty and thereby increased the demand for money" (1984, p. 399). In recent papers in this journal Hall and Noble (1987), Brocato and Smith (1989), and Mehra (1989) have offered varying degrees of support for Friedman's explanation. These authors used the Granger-causality method to test the general hypothesis that money supply volatility "causes" income velocity to ...

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