Follow up to Is Velocity Stable? Part MXXVI. With data up to 2023Q4, the answer remains “no”.

Figure 1: M2 velocity calculated using GDP (blue), M4 divisia velocity (tan), both in logs, 1990Q1=0. NBER defined peak-to-trough recession dates shaded gray. Source: Federal Reserve, BEA, via FRED, CFS, NBER, and author’s calculations.

One would think that a glance at the data would suffice, but some readers have (well, one has) averred that experts consider velocity stable when using divisia measures of money. In order to accommodate those views, I add in M4 Divisia velocity.

An ADF test applied to both velocity series (in logs) fails to reject unit root null, while a KPSS test applied to both series rejects at 5% msl the trend stationary null.

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