The Circulation of Money and Holding Time Distribution

Abstract

We have studied the statistical mechanics of money circulation in a closed economic system. An explicit statistical formulation of the circulation velocity of money is presented for the first time by introducing the concept of holding time of money. The result indicates that the velocity is governed by behavior patterns of economic agents. Computer simulations have been carried out in order to demonstrate the shape of the holding time distribution. We find that, money circulation is a Poisson process in which the holding time probability distribution follows a type of Gamma distribution, and the velocity of money depends on the share for exchange and the number of agents.