Specific Features of the Velocity of Money for Euro and Non-Euro Countries Across the Euro Entry

Eleven European countries adopted the Euro as their single national currency in 1999, and others have followed suit to form a 19-member single-currency bloc by 2015. Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain were the founding members. In the ordinary least squares (OLS)/panel regressions for 1992–2011 for seven Euro and four non-Euro countries, the GDP growth rate has a strong positive effect on the money velocity change rate, whereas the money growth rate exhibits a strong negative effect. Generally, deposit rates have strong positive effects and lending rates present negative effects for the seven Euro countries. In the regressions for the pre-Euro (1993–1997) and post-Euro (2003–2007) subperiods, we identify a shift in the importance of responsiveness of velocity change rate from money growth rates to inflation, deposit, and lending rates, although the impact of the former remains dominant. In the third nonlinear smooth transition regression (STR) models for the United Kingdom for 1980–2015 and the Netherlands for 1982–2015, we identify a much better fit than the aforementioned linear OLS models. We could also specify endogenously the structural break points in the behavior of money velocity against price level using STR models