W.: The variability of velocity of money in a search model

We construct a dynamic search model to examine the behavior of velocity. The prominent feature of the model is costly search in both goods and labor markets. Incorporating money growth shocks and productivity shocks, we calibrate the model to the US time series data. Even though there is no substitution between money and credit or other assets, our model gen-erates volatile velocity and a negative correlation between velocity and consumption growth. Both features are noticeably lacking in some other equilibrium monetary models. We also examine the propagation mechanism for the shocks and the correlations between endogenous variables