DETERMINANTS OF INDONESIA’S INCOME VELOCITY OF MONEY
Keywords:
Income velocity of money, Unit root; Cointegration; Long-run and short-run elasticities.
Abstract
Using monthly time-series data and both short-and long-run models, our paper
examines the determinants of Indonesia’s income velocity of money. Our findings
suggest that in the long-run, tax revenue, short-term interest rate, industrial production
and, in the short-run, money demand, significantly determine income velocity of
money. Our analysis suggests that the effect on income velocity is mostly over the
long-run as most determinants are dormant in the short-run. The implication from a
policy perspective is that shocks are unlikely to burden income velocity over short time
horizons.
Downloads
Download data is not yet available.
References
Akinlo, A. E. (2012). Financial Development and the Velocity of Money in Nigeria: An Empirical Analysis. The Review of Finance and Banking, 4, 97-118.
Altayee H.H.A., and Adam, M.H.M. (2013). Financial Development and the Velocity of Money Under Interest-Free Financing System: An Empirical Analysis. American Based Research Journal, 2, 53-70.
Bordo, M.D., and Jonung, L. (1981). The long-run behaviour of the income of money in five advanced countries. 1870-1975: An institutional approach. Economic Inquiry, 19, 96-116.
Bordo, M.D., and Jonung, L. (1990). The long-run behaviour of velocity: an institutional approach revisited. Journal of Policy Modelling, 12, 165-197.
Bordo, M.D., Jonung, L., and Siklos, P. (1993) The Common Development of Institutional Change as Measured by Income Velocity. A Century of Evidence from Industrialised Countries. NBER Working Paper No 4379.
Chandavarkar, A. G. (1977). Monetization of Developing Economies. IMF Staff Papers, 24, 665-721.
Dickey, D.A., and Fuller, W.A. (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. Journal of the American Statistical Association, 74, 427-431.
Friedman, M., and Schwartz, A.J. (1963). A Monetary History of the United States, 1867-1960. Princeton University Press.
Holmes, J. M., and Smyth, D.J. (1972). The Specification of the Demand for Money and the Tax Multiplier. Journal of Political Economy, 80, 179-85.
Ireland, P.N. (1991). Financial Evolution and the Long-Run Behaviour of Velocity: New Evidence from US Regional Data. FRB Richmond Economic Review, 77, 16-26.
Jung, A. (2017). Forecasting Broad Money Velocity. North American Journal of Economics and Finance, 42, 421-432.
McGibany, J., M., and Nourzac, F. (1985). Income Taxes and the Income Velocity of Money: An Empirical Analysis. Journal of Macroeconomics, 7, 523-535.
Mele, A., and Stefanski, R. (2018). Velocity in the Long Run: Money and Structural Transformation. Review of Economic Dynamic, In Press.
Narayan, P.K. (2005). The Saving and Investment Nexus for China: Evidence from Cointegration Tests. Applied Economics, 37, 1979-1990.
Narayan, P.K., and Popp, S. (2010). A New Unit Root Test with Two Structural Breaks in Level and Slope at Unknown Time. Journal of Applied Statistics, 37, 1425-1438.
Narayan, P.K. and Popp, S. (2013). Size and Power Properties of Structural Break Unit Root Tests. Applied Economics, 45, 721-728
Narayan, P. K., Narayan S., Rahman, R. E., and Setiawan, I. (2018). Bitcoin Price Growth and Indonesia’s Monetary System. Emerging Markets Review, In Press.
Newey, W. K., and West, K. D. (1987). A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix. Econometrica, 55, 703–708.
Okafor, P.N., Shitile, T.S., Osude, D., Ihediwa, C.C., Owolabi, O. H., Shom, V.C., and Agbadaola, E.T. (2013). Determinants of Income Velocity of Money in
Nigeria. Central Bank of Nigeria, Economic and Financial Review, 51, 29-59. Pierce, J. L., and Thomson, T. D. (1972). Some Issues in Controlling the Stock of Money. Controlling Monetary Aggregates II: The Implementation, Federal Reserve Bank of Boston Conference Series, 9, 115-36.
Poole, W. (1970). Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macroeconomic Model. Quarterly Journal of Economics, 84, 197-216.
Short, B.K. (2007). The Velocity of Money and Per Capita Income in Developing Economies: Malaysia and Singapore. The Journal of Development Studies, 9, 291-300.
Sharma, S.S., Tobing, L., and Azwar, P. (2018). Understanding Indonesia’s Macroeconomic Data: What Do We Know and What are The Implications? Bulletin of Monetary Economics and Banking, 21, 229-264.
Tatom, J.A., (1983). Was the 1982 Velocity Decline Unusual? Federal Reserve Bank of St. Louis Review, 5-15.
Thornton, D.L., (1983). Why Does Velocity Matter? Federal Reserve Bank of St. Louis Review, 5-13.
Altayee H.H.A., and Adam, M.H.M. (2013). Financial Development and the Velocity of Money Under Interest-Free Financing System: An Empirical Analysis. American Based Research Journal, 2, 53-70.
Bordo, M.D., and Jonung, L. (1981). The long-run behaviour of the income of money in five advanced countries. 1870-1975: An institutional approach. Economic Inquiry, 19, 96-116.
Bordo, M.D., and Jonung, L. (1990). The long-run behaviour of velocity: an institutional approach revisited. Journal of Policy Modelling, 12, 165-197.
Bordo, M.D., Jonung, L., and Siklos, P. (1993) The Common Development of Institutional Change as Measured by Income Velocity. A Century of Evidence from Industrialised Countries. NBER Working Paper No 4379.
Chandavarkar, A. G. (1977). Monetization of Developing Economies. IMF Staff Papers, 24, 665-721.
Dickey, D.A., and Fuller, W.A. (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. Journal of the American Statistical Association, 74, 427-431.
Friedman, M., and Schwartz, A.J. (1963). A Monetary History of the United States, 1867-1960. Princeton University Press.
Holmes, J. M., and Smyth, D.J. (1972). The Specification of the Demand for Money and the Tax Multiplier. Journal of Political Economy, 80, 179-85.
Ireland, P.N. (1991). Financial Evolution and the Long-Run Behaviour of Velocity: New Evidence from US Regional Data. FRB Richmond Economic Review, 77, 16-26.
Jung, A. (2017). Forecasting Broad Money Velocity. North American Journal of Economics and Finance, 42, 421-432.
McGibany, J., M., and Nourzac, F. (1985). Income Taxes and the Income Velocity of Money: An Empirical Analysis. Journal of Macroeconomics, 7, 523-535.
Mele, A., and Stefanski, R. (2018). Velocity in the Long Run: Money and Structural Transformation. Review of Economic Dynamic, In Press.
Narayan, P.K. (2005). The Saving and Investment Nexus for China: Evidence from Cointegration Tests. Applied Economics, 37, 1979-1990.
Narayan, P.K., and Popp, S. (2010). A New Unit Root Test with Two Structural Breaks in Level and Slope at Unknown Time. Journal of Applied Statistics, 37, 1425-1438.
Narayan, P.K. and Popp, S. (2013). Size and Power Properties of Structural Break Unit Root Tests. Applied Economics, 45, 721-728
Narayan, P. K., Narayan S., Rahman, R. E., and Setiawan, I. (2018). Bitcoin Price Growth and Indonesia’s Monetary System. Emerging Markets Review, In Press.
Newey, W. K., and West, K. D. (1987). A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix. Econometrica, 55, 703–708.
Okafor, P.N., Shitile, T.S., Osude, D., Ihediwa, C.C., Owolabi, O. H., Shom, V.C., and Agbadaola, E.T. (2013). Determinants of Income Velocity of Money in
Nigeria. Central Bank of Nigeria, Economic and Financial Review, 51, 29-59. Pierce, J. L., and Thomson, T. D. (1972). Some Issues in Controlling the Stock of Money. Controlling Monetary Aggregates II: The Implementation, Federal Reserve Bank of Boston Conference Series, 9, 115-36.
Poole, W. (1970). Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macroeconomic Model. Quarterly Journal of Economics, 84, 197-216.
Short, B.K. (2007). The Velocity of Money and Per Capita Income in Developing Economies: Malaysia and Singapore. The Journal of Development Studies, 9, 291-300.
Sharma, S.S., Tobing, L., and Azwar, P. (2018). Understanding Indonesia’s Macroeconomic Data: What Do We Know and What are The Implications? Bulletin of Monetary Economics and Banking, 21, 229-264.
Tatom, J.A., (1983). Was the 1982 Velocity Decline Unusual? Federal Reserve Bank of St. Louis Review, 5-15.
Thornton, D.L., (1983). Why Does Velocity Matter? Federal Reserve Bank of St. Louis Review, 5-13.
Published
2019-02-28
How to Cite
Sharma, S., & Syarifuddin, F. (2019). DETERMINANTS OF INDONESIA’S INCOME VELOCITY OF MONEY. Buletin Ekonomi Moneter Dan Perbankan, 21(3), 323-342. https://doi.org/10.21098/bemp.v21i3.1006
Issue
Section
Articles
Copyright (c) 2019 Buletin Ekonomi Moneter dan Perbankan
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
