A bank panic that causes a drastic decrease in such measures of money as M2 and M1 stems from an increased demand for currency and reserves, the two forms of base money. In this case, a fall in the broader money stock and a fall in the velocity of the monetary base are exactly the same thing, and they become alternative ways of describing what happened during the Great Depression. . . . Thus, whether we label a particular decline in aggregate demand a monetary shock or a velocity shock can depend on how broadly or narrowly we define the money stock.
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