Frictions are introduced in the financial structure of a cash-in-advance dynamic stochastic general equilibrium model with the interest of studying their impact on the variability of velocity due to serially correlated monetary shocks. Possessing no analytical solution this dynamic environment. A projection method which parameterizes expectations and employs finite elements in the approximation of the system's policy functions is executed on the approximation a solution for the equilibrium of the economy and is able to efficiently handle the occasionally binding cash-in-advance constraint on transactions. This last characteristic permits a robust analysis on the impact of frictions on the variability of velocity. It is concluded that frictions on the financial structure of the economy accentuate a precautionary demand for money balances, increasing the incidence of adjustments on the velocity of transactions as an answer to money growth rate shocks.
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