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Income velocity and the variability of money growth: evidence from less developed countries

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  • Oluwole Owoye

Abstract

This paper examines whether the variability of money growth caused changes in income velocity of money in 30 less developed countries. Time-series data show year-to-year variations in income velocity of money in these countries for the 1961-1990 period. Empirical results based on causality but complemented by variance decomposition tests show that money growth is the most important determinant in explaining the variability in income velocity in at least 20 of the 30 developing countries examined in this study. In addition, the causality results show that inflation rate Granger-causes income velocity of money in 21 countries, but the variance decomposition results show inflation rate to be relatively more important in explaining the variability of velocity in eight countries. Similarly, while real income Granger-causes velocity of money in 18 countries, the results of the variance decomposition tests show real income to be relatively more important as a determinant of income velocity in two countries. Overall, these results show that the Grangercausality as a test of predictability does not show the effects of shocks to one variable on another, but the variance decomposition test provides evidence with respect to the effects of shocks.

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  • Oluwole Owoye, 1997. "Income velocity and the variability of money growth: evidence from less developed countries," Applied Economics, Taylor & Francis Journals, vol. 29(4), pages 485-496.
    • Handle: RePEc:taf:applec:v:29:y:1997:i:4:p:485-496
    DOI: 10.1080/000368497326976
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    Cited by:

    1. Soe, Than Than & Kakinaka, Makoto, 2018. "Inflation targeting and income velocity in developing economies: Some international evidence," The North American Journal of Economics and Finance, Elsevier, vol. 44(C), pages 44-61.
    2. Serpil Canbas & Murat Doganlar & Yildirim B.Onal, 2002. "Measurement of Foreign Exchange Exposure on the Turkish Private Banks’ Stock Prices," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 6(22), pages 17-32.
    3. Fatih Cin & Fikret Dulger, 2002. "Income Velocity of Money (M2): The Case of Turkey, 1986-2000," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 6(22), pages 33-48.
    4. Miyakoshi, Tatsuyoshi & Jalolov, Mirzosharif, 2005. "Money-income causality revisited in EGARCH: Spillovers of monetary policy to Asia from the US," Journal of Asian Economics, Elsevier, vol. 16(2), pages 299-313, April.
    5. Masoud Moghaddam, 2010. "Co-integrated money in the production function-evidence and implications," Applied Economics, Taylor & Francis Journals, vol. 42(8), pages 957-963.
    6. Badri, Ahmad & Zamanzadeh, Hamid, 2016. "The Role of Unbalanced Balance Sheet of Banking System in Creating the Puzzle of Interest Rate, Inflation and Liquidity Growth: Evidence from Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 11(2), pages 173-191, April.
    7. Tulay Yucel & Gulizar Kurt, 2002. "Cash Conversion Cycle, Cash Management and Profitability: An Empirical Study on the ISE Traded Companies," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 6(22), pages 1-16.
    8. Okotori, Tonprebofa & Gbalam, Eze, 2020. "CBN monetary policy and inflation nexus in Nigeria: an empirical approach," MPRA Paper 110523, University Library of Munich, Germany.

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