Determinants and Stability of Velocity of Money
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Money velocity is a significant variable for monetary authorities. Given the stable money volatility, the monetary policy can achieve economic goals both the economic growth and the price stability after an inflation targeting policy regime was introduced. The results indicate that the rate of narrow money velocity (V1) and the rate of wide money velocity (V2) depends on the real GDP per capita, demand for money, monetary innovation and the inflation rate respectively. The stability test results indicate that both models have the stability and the long run relatioship. In summarized, if monetary authorities aim to boost the economic growth, they can achieve the policy goal by changing the behavior of the cash holding of individual by developing the new monetary innovation such as a credit card and a debit card. Because an introduction of monetary innovation will decrease the demand for money and, therefore, will increase the rate of money velocity.
Keywords: Velocity of Money
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