Velocity of money = GDP/Money in circulation?

Question

Is there any other way to measure Velocity of money besides using the following formula?
Velocity of money = GDP/Money in circulation

This formula does not make much sense to me. If Money in circulation is constant and GDP does not increase, then Velocity would be constant. But i can imagine hyperinflationary periods were people do not want to hold the money and do exchange it quickly for goods (increasing velocity of money) without GDP increasing (or money in circulation decreasing).

During the Weimar hyperinflation GDP did not increase significantly and money in circulation was always increasing (even printing bank notes only in one side, hiring private printing companies), nevertheless velocity of money was increasing quickly.

So, who has the answer to this "Conundrum"?

Answer 1

You are using the almost correct formula. Almost, because you forget to clarify that it is the nominal GDP you use. Since you forget to clarify this, you start your reasoning thinking about real GDP.

Also, you seem to be confusing the cause and effect. Velocity of money is determined by households' and businesses' willingness to hold money (which is heavily influenced by inflationary expectations). The formula is only used to quantify the consequences of that; it does not mean that the velocity of money is somehow determined by GDP and money supply.

During the Weimar hyperinflation, money in circulation was always increasing and the inflationary expectations ran high, so the velocity of money was enormous (at the height of the hyperinflation, workers were paid twice a day and spent their morning paycheck during lunchtime, which suggests annualized velocity of about 1,000 vs. about 5, customary in quieter times); because of that, the nominal GDP did increase significantly, while real GDP stagnated...