| What determines the velocity of money? The 1982 decline in the velocity of money in the U.S. raised this question. Attempts, both theoretical and empirical, using the volatility of money as an explanatory variable, have been made to address this question.; This thesis introduces Conditional Heteroskedastic models to decompose the volatility of money growth into its anticipated and unanticipated components. Testing in a Granger-causality framework yielded results, supported by the theory of Rational Expectations, that it is the unanticipated volatility measure that affects the velocity of money. Hence, the unanticipated volatility of money growth is a strong determinant of the velocity of money. |
