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a Drs Yan Huqin& Yan Kejia
A DYNAMIC DISCRETE INCOME QUANTITY EQUATION OF MONEY A DYNAMIC DISCRETE INCOME QUANTITY EQUATION OF MONEY :
Empirical Analysis Based on the Data from both China and the U.S.
ABSTRACT
Beginning from the discussion of the original equation of Friedman’s income quantity theory of money, by questioning and analyzing the two assumptions suggested by Friedman, this paper suggests that the velocity of money should be treated as a variable but not as a constant. When the velocity of money is treated as a variable, a concept of marginal rate of the velocity of money is introduced into the income quantity equation of money. Then a dynamic discrete income quantity equation of money is created, which is suitable for both of the situations of including or not including Friedman’s two assumptions. Based on the data of Money M2 from China and Money M3 from the U.S. during year 1978-2010, the empirical analysis results have approved that the dynamic discrete income quantity equation of money is suitable for both countries.
Keywords: Income Quantity Equation of Money, Velocity of Money, Margin Rate of Velocity, Inflation Rate
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