Some Theoretical Considerations for a Dynamic Equation of Exchange

Abstract

The author introduces a dynamic version of the equation of exchange that is used as a basis for the derivation and discussion of (i) the relationships between force, work, and the velocity of money; (ii) the velocity of money derived from Fisher’s static equation of exchange is shown to be a special case of the velocity derived from the new dynamic equation; and (iii) the economic implications of an extreme force of money on price inflation, output transactions, and the structure of the economy. Unlike previous models, this dynamic approach allows all variables to fluctuate over time, providing a more realistic framework for analyzing monetary policy impacts and economic fluctuations.