The Research On Movement Law And Microeconomic Foundation Of Transaction Velocity Of Money

Along with the development of virtual economy, financial products are tradingmore and more frequently. The trend of the money diverted into real economy andvirtual economy has been greatly obvious which prompts the medium of exchangefunction transferring to virtual department from entity department and forms theinteraction pattern of well known two velocity of money. This economic phenomenonnot only provides a new macro perspective to research but also extends a vast spacefor us building on microeconomic foundation.Seeking the micro foundation of velocity movement is an advanced topic inmonetary theory currently. Residents are important microscopic main bodies inmacro-economy. Thus, the research on residents’ behavior will help us to understandthe movement law and direction of the velocity of money. In turn, the finding may bepossible to provide importance guide towards the macroeconomic policy which isdrafted and enforced. Specifically, consumer behavior is directly related tocurrency-commodities trading in real economy and influences on the law of velocityin this field. Meanwhile, the investment behavior is association with currency-assetstransaction in virtual economy. Because it not only restricts the asset price fluctuationbut also controls the velocity’s track in the virtual economy. Therefore, peoples’behavior choice plays a key role on velocity’s formation and movement. Indeed, sincethe two departments have their own specific attribute and there are relationshipsbetween them, two kinds of velocity of money show convergence and heterogeneousin contradictory and unified manner more or less.In view of this, we are engaged in the velocity of money base onconsumer-investment behavior in the real economy and virtual economy frameworkwill have microscopic realistic meaning. This paper’s procedure is as follows:First of all, we constructed two big economic system of simple trading model inorder to find out velocity expression Equation which can correspond to micro trading behavior characteristics and reflect the law of velocity truly. Then we usemathematical derivation and economic analysis tools to depict logical relationshipbetween trading velocity and spending money. Meanwhile, we adopted the envelopetheorem to draw trend diagram of velocity of money which described velocity andtransaction between two velocities. It should be noted that this paper is built on idealand enclosed environment which is different from traditional theory using functionequation to analyze problems. Although there are some distances between theory andreality, we could relax many conditions properly then discuss kinds of factors existedin the rule of velocity from model such as individual subject factors and institutionalenvironment factors and so on. It is helpful to guide the scientific research greatly.Second, we used the Dynamical programming theory, the cross timeconsumption theory to explore the mechanism of the optimal consumption-investment of residents for seeking microcosmic factors on consumption-investmentbehavior of the manner of action. And we conducted the logical syllogism anddeduced the micro influence mechanism of velocity from spending money andconsumer behavior choice as tie.Furthermore, this paper studied long-term trend and short-term fluctuation of thevelocity of money according to different performance (subjective discount, riskpreference, expectations, etc.)displayed from residents behavioral parameters in thespecific historical stage of economic development, and we carried out the EmpiricalTest by the method of the Bounds co-integration test to investigate influence betweenrisk aversion, subjective rate of discount, confidence index and traction velocity ofmoney. We believe that this paper will be incredibly useful handbook for developingand implementing effective monetary policy in the next step.This paper aims to explore the movement law of traction velocity and themicroscopic influence mechanism. It mainly focuses on the theoretical model andempirical test. Because of lack of data resource, it is only after Reform and Openingup that discussed in this paper. Therefore, it led to insufficient analysis in someextend. In addition, this paper has not been involved in the behavior choice ofenterprise, government, financial institutions. This field is the future that we want to explore and we wish that this paper will lay solid theoretical basis for research onmacroeconomic analysis of the traction velocity of money.