behavioral pattern of income velocity of money and estication of its function (the case of iran)
پاییز 1383 - شماره 11 ISC (36 صفحه - از 21 تا 56)
Inflation ،Monetary policy ،money supply ،(income) velocity of money (liquidity) ،demand for money ،classical theory ،New - classical theory ،New Keynesian school ،(un) anticipated policy ،stability of velocity
Based on the “Aggregate Demand” theory, monetary policies are designed with the aim of achieving desirable level of macroeconomic goals through affecting the stock of money supply and income velocity of money. Thus, the velocity (V)-as well as money supply - has significant impact, particularly on rate of inflation through expansionary or contractionary monetary policy. To focus on the velocity from a theoretical point of view, the classical theories of demand for money considered this variable as a stable, due to negligible changes in structures and real variables of the economy. On the other hand, the contemporary theories of New-classical and New-Keynesian schools believed in the effectiveness of anticipated and even unanticipated policies on the fluctuations, or stability of income velocity. However in regards to the fluctuations of this variable in the Iranian economy, it has been observed that from the 1340’s (1960’s) until the beginning of the First Five Year Development Plan, in 1368 (covering 1989/90-1993/94 period) it has diminished and then until recent years, it has an upward trend, showing a “U” shape pattern, same as that in the European and American economies. Thus, to find a specific behavioral pattern for this variable, we can estimate and predict its impacts on macro-economic variables, i.e, on inflation rate, etc. In this paper, an attempt is made to survey the stability of this variable, and then the long run or the equilibrium function of income velocity shall be estimated, using the co-integration method. Finally, we analyse the short run adjustment of this variable to predict its long-run equilibrium value, by applying the impulse response function, variance decomposition and error correction model (ECM).خلاصه ماشینی:
"In another interpretation of Fisher equation, with regards to the complexity of computation of volume of transactions due to the significant developments in financial markets, and to analyze the impacts of velocity on inflation and national income, we have: (2) In which M, represents the volume of active money and “V” is “Income velocity of money” indicating time intervals (period) which each unit of money is spent by the economic agents for final goods. Bordo and Jonung have expounded that the long-run, behavior of “V” and its fluctuations are the result of institutional developments in the money and capital markets, particularly that of broader-based banking system expansion, technical progress in financial sector of different countries, and changes in fiscal and monetary policy decision making. Hence, estimation of “V” function is performed by two models, indicating velocity of liquidity “V2and velocity of money “V1as follows: (8) (9) A- In the above models, vector Фtincludes variables that originate from real money balances, which in turn comes from variables indicating conventional theories of demand for money function such as: Фt=[YCAPR, RTL,RSS, INF] where: YCAPR= real per capita income (Gross domestic product at constant 1361 factor prices) RTL= weighted average rate of return on long-term investment deposits of one year and more in the banking system (at current prices) RSS = rate of return on savings and short-term deposits in the banking system."
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