The Velocity Of Money In Sector Circuit Model

As a key macroeconomic variable, the velocity of money has attracted much attention for hundreds of years. However, it also remains controversy. People have been attempting to figure out its determinants. From the perspective of the sector economy, we develop the circuit model to mimic the whole economy, examining the circulation process of money.Our work is erected on the sector circuit models and the multi-agent transfer models. As we know, sector circuit models take the structure of economic system into account, but they neglect the temporal characteristics, while the multi-agent transfer models consider the holding time, but neglect the structure. We take the advantages of these two models by considering introducing both structure and temporal characteristics in constructing the macroeconomic model. Then we perform computer simulations to observe the evolution of the characteristics of the system and analyze their statistical characteristics when the system reaches steady state.In this paper, the history of research of money circulation has been reviewed first, while the limitations still exist in the assumptions, framework and analysis. In order to explore the determinants behind the velocity of money, we should resort to the economic theory that pays much attention to money circulation process, instead of the traditional static equilibrium analysis. As the basis of our work, the sector circuit models and the multi-agent transfer models are reviewed, where there are advantages and disadvantages. We incorporated both the structure and the holding time in the macroeconomic model. Also, we adopt the TL model proposed by T. Andresen to mimic the economy system with several sectors. We can examine the dynamic process of money circulation, and then we extend it into two dimensions. In the longitudinal direction, various product economic chains have been introduced, while in the lateral direction, the number of sectors is enlarged. Imposing the mechanism of the money circulation, we can observe the circulation process of money and get the statistical results of money distribution on holding time.In this paper, we consider the economy essentially as a circulatory flow of money, while the velocity of money is an important variable to evaluate the efficiency of money circulation. The factors affecting it are not only the holding time of the sectors, which is reversely related to the velocity, but also the structure of the economy statistics, such as the propensity of the consumption and investment, the relationship between the upstream and downstream sectors, and the ratio of the money flow. In the end, we compare the results obtained in the sector circuit models with those in multi-agent transfer models and find out when the economy reaches a certain size, both the final statistical distributions are very similar.