Velocity Of Money Research Articles

The impact of a cashless electronic payment system on hyperinflation in Bangladesh

The increase of electronic payment methods, or payments that don't include the use of currency has transformed financial transactions. Non-cash transactions are convenient, simple, and fast, among other benefits. Furthermore, payments without cash have an effect on Bangladesh's currency management. The practicality that comes with using transactions without cash causes the velocity of money to increase. The society has seen a decline in payments in cash, yet the velocity of currency causes an intense pace when transactions without cash are used. It is thought that increased money transmission capacity will have hyperinflation implications. The purpose of this study is to ascertain how the cashless payment method affects hyperinflation. This research utilized an analytical approach and additional information from the beginning of 2021 to the end of 2023 that had been collected through Bangladesh Bank using verification methodologies. Multiple linear regression analysis is the process of research. The findings indicated that the factors related to digital currency experienced significant adverse effects, the factors related to debit cards, credit cards, online banking, or mobile banking had a major beneficial effect, the parameters related to credit cards had a meaningless unfavourable impact, and the variables related to rates of interest had an important beneficial effect.

Impact of Exchange Rate Fluctuations on Money Velocity in the Egyptian Economy

Impact of Exchange Rate Fluctuations on Money Velocity in the Egyptian Economy

Is money velocity pro-cyclical? The case of India

Monetary targeting served as a useful tool for conducting monetary policy until 1980s, but the instability in the relationship between money and nominal income led to its abandonment by most economies. One way of measuring this relationship is money velocity, defined as the ratio of nominal income to money. The purpose of the present study is to show that if short-run cyclical factors are accounted for, money velocity function becomes stable and thus any change in monetary aggregates will lead to predictable change in nominal income and therefore inflation. In such a scenario, monetary targeting can serve as a useful tool in the conduct of monetary policy. The study utilizes quarterly data from 1996:Q2 to 2020:Q1 and time series methodology to conduct empirical analysis. Findings show that money velocity and all its identified determinants exhibit pro-cyclical behaviour. After accounting for these determinants, money velocity has been found to be stable. The direction of causality runs from money velocity to rate of interest to investment to GDP. Thus, when formulating monetary and fiscal policies, policymakers can monitor the short-term cyclical patterns in money velocity as an indicator of forthcoming expansionary or contractionary conditions in the economy to design effective policies.

Analyzing the Economic Stability during COVID-19 Pandemic in Indonesia: The Moderating Role of Money Velocity Management

Analyzing the Economic Stability during COVID-19 Pandemic in Indonesia: The Moderating Role of Money Velocity Management

The Velocity of Money and Lessons for Monetary Policy in Nigeria: An Application of the Quantile ARDL Approach

AbstractThe paper investigates the determinants and stability of the income velocity of money while accounting for structural breaks in its approach from the period Q1 1981 to Q4 2023 in Nigeria. The paper extends previous works by accounting for four velocities of money functions having accounted for structural breaks in its approach. The study adopted the Bai and Perron breakpoint test, the Zivot and Andrews, and Perron and Vogelsang structural break unit root tests to determine the break dates and the variables’ stationary properties. In analyzing the main results, the study used the quantile ARDL method to establish the determinants of income velocity of money in Nigeria, while it used the CUSUM tests to establish the stability of money velocity in Nigeria. The study found that the determinants of the velocity of money are per capita income, the exchange rate, financial development, inflation, and the interest rate across the four models. Furthermore, the four velocities of money functions were unstable for Nigeria using the cumulative sum and cumulative sum of squares tests. Consequently, the study recommends effective monitoring and the provision of sound monetary policies to ensure a stable and predictable velocity of money. This can be achieved by understanding and focusing on these key determinants and crafting informed strategies to manage economic growth and stability. This holistic approach ensures that the benefits of economic policies are felt broadly across the economy, ultimately bolstering overall financial health and enhancing the velocity of money, which is crucial for sustained economic progress.

The lens of the quantity theory of money to disentangle the perceived relationship between money growth and inflation: a PSVAR approach

This paper contributes to the debate on the re-appraisal of monetization mechanism as a possible tool for dealing with macroeconomic imbalances due to close economic shocks (e.g. the Covid pandemic, the Russia-Ukraine conflict and the escalation in Israel-Hamas crisis). We analyze and empirically discuss the well-known Quantity Theory of Money (QTM), by applying the SVAR methodology to a heterogeneous panel including several Countries (Australia, China, India, Japan, United Kingdom and the United States) plus the block of Euro Zone (EZ) over the period 1992–2022. We investigate the dynamics and the impacts of the variables included in the theoretical model (inflation, GDP growth, money growth and the change in the velocity of money) through the analysis of the macro economic datasets retrieved from the OECD and Trading Economics databases. We find that money growth does not exert the decisive spillover effect on the path of inflation (i.e. common shock) throughout our sample. Moreover, our results indicate that the idiosyncratic component does not show a predominant and determining role of monetary growth in inflationary dynamics.

Mobile Money Use, Digital Banking Services and Velocity of Money in Ghana

Investigating the correlation between digital financial services, mobile money usage, and money velocity in Ghana, the study analysed time series data spanning from 1992 to 2022. A composite index was constructed by principal component analysis using data extracted from the world development indicators, with the components mobile money usage, digital financial services, and velocity of money. The estimation utilised an impulse response function and vector error correction model; the results indicated that mobile money, digital financial services, and money velocity are related in both the short and long term. Furthermore, the application of a standard deviation innovation to the velocity of money produced increases of both positive and negative magnitude for all the variables. This suggests that mobile money, digital banking services, and velocity of money in Ghana are interdependent in an asymmetric manner. In order to facilitate an increase in the velocity of money, the research concluded that policymakers should guarantee that a greater proportion of the population has access to mobile money and digital banking services. In addition to promoting mobile money, online banking services, and digital payment methods on purpose, the government should reduce reliance on physical currency and expedite the circulation of money. It is recommended that future longitudinal studies involving African nations employ diverse estimation techniques.

Analysis of the Effect of Non-Cash Payments on the Velocity of Money in Indonesia

The purpose of this study is to analyze how the effect of non-cash payments on the Velocity of Money. This study used a quantitative approach and used multiple linear regression as the data analysis method. The population in this study is the territory of Indonesia, the sampling technique uses non-probability sampling with a type of saturated sampling technique. The secondary data used is a time series within a period of 14 years, the period 2009 to 2022 in annual form. The results of this study show that from the results of t Test, ATM/Debit Cards have a significant negative effect on the Velocity of Money. Credit Cards have a significant positive effect on the Velocity of Money. However, E-Money does not affect the Velocity of Money. Meanwhile, based on the F Test result, ATM/Debit Cards, Credit Cards, and E-Money simultaneously have a significant effect on the Velocity of Money at a confidence level of 93%. This research provides benefits for the government, society, and other institutions in the form of steps and attitudes that need to be taken to increase non-cash payment transaction value to increase the Velocity of Money in Indonesia.

Velocity of Money and Productivity Growth: Explaining the 2% Inflation Target in the U.S. (1959–2007)

This article provides a macro-foundation for why the specific value of 2% is a valid inflation target. The approach postulates that innovations generate transactional cost savings by comparison to barter. The optimal velocity of money is derived as a function of productivity growth and of long-term and short-term interest rates, with coefficients reflecting the leverage ratio of depository institutions and the degree of bias in technical progress in the transaction technology. The model is tested for the U.S. (for aggregates M1, M1RS, and M1S) over the period 1959–2007. Setting the inflation target rate equal to the growth rate of velocity leads to an inflation rate near 2% and is akin to pursuing the Friedman k-% rule. This rule provides flexibility to prevent deflation. A long-term Taylor-type rule is derived. A robustness test is also conducted by extending the sample period up to 2023, covering sustained episodes of unconventional U.S. monetary policy.

Estimating the effects of electronic money on the income velocity of money in Indonesia

Estimating the effects of electronic money on the income velocity of money in Indonesia

Precautionary Money Demand in a Cash‐in‐Advance Model

AbstractWhile numerous studies in monetary economics explore inflation, interest rates, stock returns, and money velocity, a model seamlessly linking these interactions remains elusive. One crucial omission in this literature is idiosyncratic precautionary money demand, a prominent feature in the data. This paper addresses this gap by presenting a simple model where precautionary money demand arises from heterogeneous household liquidity needs. Despite its intricate heterogeneity, the model allows straightforward aggregation, enabling analysis of its implications for household portfolios composed of cash, government bonds, and equities. The empirical analysis spans the period 1959.I–2022.I. Notably, the model captures crucial time‐series properties that models without the idiosyncratic element fail to achieve.

Impacts of bitcoin on monetary system: Is China's bitcoin ban necessary?

This paper examines the impacts of Bitcoin price growth (BPG) and Bitcoin volatility (BV) on China's monetary system indicated by inflation rates (INF), real exchange rates (RER) and money velocity (MV) based on the GARCH models using Bitcoin data from 2013 to 2019 to evaluate the necessity of China’s Bitcoin ban. The empirical results suggest that BPG has a significant negative impact on INF and MV, but is insignificant for RER. While the BV is insignificant for all three monetary aggregates. Consistent evidence is found from additional tests including the alternative model specifications, subperiod analysis and adding up third-party online payment as another control variable for money velocity. Our study focuses on the period without the sweeping ban of cryptocurrencies in China, which provides support for researchers and financial advisors when forecasting inflation or money velocity in other areas without legal-bans but having a relevantly crypto-skeptical attitude, and also for authorities in shaping and implementing relevant monetary policies.

ANALYSIS DETERMINANTS THE VELOCITY OF MONEY IN INDONESIA

This study aims to analyze the effect of gross domestic product, inflation, and interest rates on the velocity of money in Indonesia for the period 2011 quarter I to 2020 quarter IV. This type of research is descriptive research with a quantitative approach. Research data was obtained from publications by the Central Bureau of Statistics (BPS) and Bank Indonesia. The data analysis technique used Multiple Linear Regression using Eviews 12. The results stated that the gross dometic product variable partially had a negative and significant effect on velocity of money, this was indicated by the value of t count > t table, which is -4.002220 > 2.021075, while the inflation variable has no effect on velocity of money with the value of t calculate < t table, which is -0.084848 < 2.021075 and the variable interest rate has a positive effect on velocity of money with the value of t calculate > t table, which is 3.200801 > 2.021075. Simultaneously (together) gross domestic product, inflation, and interest rates have a significant effect on the velocity of money in Indonesia with f calculated > f table which is 27.04354 > 2.838745.

WHAT DRIVES MOVEMENTS IN THE INCOME VELOCITY OF MONEY? A CASE STUDY OF THE U.S.

In their efforts to stabilize the price level, central banks often rely on the growth rate in the stock of money as an intermediate target variable. Usually, the premise underlying this approach is that the income velocity of money, defined as the ratio of nominal GDP to the stock of money, either randomly fluctuates around a constant mean or can, at least, be predicted with sufficient accuracy. The purpose of this paper is to put this assumption to the test. We do so by applying a first-order autoregressive model, supplemented by a set of lagged exogenous regressors, to the quarterly changes in velocity in the U.S. Our results confirm previous findings that dynamic dependencies exist between changes in the income velocity of money over successive periods of time. They also support the assertion that rising long-term interest rates lower the demand for money. Perhaps most importantly, however, we find that all else being equal, the degree of financialization in the economy, measured by the ratio of financial assets to GDP, has a positive and statistically significant effect on velocity. A possible explanation of this finding is the increasing availability of tradable, non-monetary financial instruments that are close substitutes for bank deposits.

Money Growth, Money Velocity and Inflation in the US, 1948–2021

Money Growth, Money Velocity and Inflation in the US, 1948–2021

Money and Credit Coexistence, Excess Capacity, and the Size of Monetary Aggregates

AbstractThis paper develops a model where money is demanded in excess of spending needs. As a result, money coexists with large availabilities of credit and the model explains the levels of monetary aggregates held in modern economies via the endogenous creation of inside money. At the heart of the model, there is a search friction in the goods market, which generates spare production and spending capacity. As a consequence, there is an endogenous productivity wedge, due to spare production capacity, and an endogenous money velocity, due to spare spending capacity.

Do product returns in the retail sector affect the price level? Evidence from the equation of exchange

Starting from Irving Fisher’s equation of exchange (MV=PT\\documentclass[12pt]{minimal} \\usepackage{amsmath} \\usepackage{wasysym} \\usepackage{amsfonts} \\usepackage{amssymb} \\usepackage{amsbsy} \\usepackage{mathrsfs} \\usepackage{upgreek} \\setlength{\\oddsidemargin}{-69pt} \\begin{document}$$MV=PT$$\\end{document}) at the basis of the quantity theory of money and mainstream (macro)economics linking money (M\\documentclass[12pt]{minimal} \\usepackage{amsmath} \\usepackage{wasysym} \\usepackage{amsfonts} \\usepackage{amssymb} \\usepackage{amsbsy} \\usepackage{mathrsfs} \\usepackage{upgreek} \\setlength{\\oddsidemargin}{-69pt} \\begin{document}$$M$$\\end{document}) and its frequency of circulation (V\\documentclass[12pt]{minimal} \\usepackage{amsmath} \\usepackage{wasysym} \\usepackage{amsfonts} \\usepackage{amssymb} \\usepackage{amsbsy} \\usepackage{mathrsfs} \\usepackage{upgreek} \\setlength{\\oddsidemargin}{-69pt} \\begin{document}$$V$$\\end{document}) on the one hand to the general price level (P\\documentclass[12pt]{minimal} \\usepackage{amsmath} \\usepackage{wasysym} \\usepackage{amsfonts} \\usepackage{amssymb} \\usepackage{amsbsy} \\usepackage{mathrsfs} \\usepackage{upgreek} \\setlength{\\oddsidemargin}{-69pt} \\begin{document}$$P$$\\end{document}) and real goods and services exchanged (T\\documentclass[12pt]{minimal} \\usepackage{amsmath} \\usepackage{wasysym} \\usepackage{amsfonts} \\usepackage{amssymb} \\usepackage{amsbsy} \\usepackage{mathrsfs} \\usepackage{upgreek} \\setlength{\\oddsidemargin}{-69pt} \\begin{document}$$T$$\\end{document}) on the other, we analyze whether product returns by consumers (reaching 16.5% of total US sales in 2022) affect macroeconomic variables such as the price level and the velocity of money. We explore two different product-return scenarios: (1) reselling, and (2) destroying returned items. Based on a theoretical analysis and data for the US, we find that reselling product returns at a discount price reduces the price level, which is however not taken into account in the statistical measurement of the consumer price index. Moreover, the “modern” equation of exchange used in mainstream macroeconomics is an unsuitable instrument to study the effects of product returns on money velocity, because it neglects non-GDP-relevant transactions such as returning and reselling products. This leads to underestimate the actual velocity of money.

Risiko Finansial Teknologi Terhadap Green Finance di Indonesia

The financial activity is an important part of green finance, but contra shock financial technology has a positive influence on the green finance growth in Indonesia. Based on the results by using Bank Indonesia data from 2019 to 2022 (time series) using the Ed Wave Index development model which combines the money quantity theory, finds that the relationship between technology financial risk and green finance is strongly influenced by the Velocity of Money, resulting in financial risk technology in the short term has a positive impact on green financial growth through the 3 wave points of the financial cycle in the economic growth area, this confirms that financial technology activities in the banking sector greatly support the green finance growth in Indonesia.

Analyzing the Impact of Foreign Direct Investment, Money Flow Dynamics, and Inflation on Economic Growth: Evidence from Special Economic Zones

Establishing robust Special Economic Zones within the determined territorial boundaries of the Republic of Indonesia is crucial for attracting increased investments, fostering industrial growth, and optimizing economic activities with high value, propelling the nation's economic development forward. This study determines the effects of foreign direct investment, velocity of money, and inflation on economic growth in Indonesian Special Economic Zones. This time series approach involves 35 years of data collected from the Central Bureau of Statistics Indonesia. The result indicates that foreign direct investment and money velocity significantly affect economic growth. Besides that, inflation does not affect economic growth. In conclusion, this study has successfully identified the factors influencing economic growth. Also, this study found that inflation does not significantly affect economic growth in Indonesia's Special Economic Zones.

Modeling which Factors Impact Interest Rates

Abstract The Taylor (1993) rule for determining interest rates is generalized to account for three additional variables: The money supply, money velocity, and the unemployment rate. Thus, five parameters, i.e. weights assigned to the deviation in the inflation rate, the deviation in real GDP (Gross Domestic Product), the deviation in money supply, the deviation in the money velocity, and the deviation in unemployment rate, are introduced and estimated. The article explores and tests various combinations of the Taylor rule, the Quantity Equation (Friedman, 1970), and the Phillips (1958) curve. The monthly US January 1, 1959 to March 31, 2022 data are adopted to test the optimal parameter values. Estimating the parameters with the least squares method gives better results than the Taylor rule. The optimal parameter values involve a relatively high weight to the deviation in unemployment rate, and moderate weights are assigned to the deviation in the inflation rate, the deviation in real GDP, the deviation in money supply, and the deviation in the money velocity. The corresponding sum of squares decreases by 42.95% when compared with the Taylor rule.