Random Walks, Breaking Trend Functions, and the Chaotic Structure of the Velocity of Money.

This paper examines the times-series properties of U.S. velocity series, using E. Zivot and D. W. K. Andrews's (1992) variation of P. Perron's (1989) test. It also tests for deterministic noisy chaos using the Nychka, Ellner, Gallant, and McCaffrey (1992) nonparametric test for positivity of the maximum Lyapunov exponent. Comparisons are made among simple sum and Divisia aggregates using the Thornton and Yue (1992) series of Divisia monetary aggregates for an extended sample period (1960:1 to 1992:12). The conclusion is that the unit root model cannot be rejected. There is tentative evidence, however, that the Divisia L velocity series is chaotic.