Economic Transformation in Bangladesh and the Income Velocity of Broad Money: An Econometric Analysis

Abstract

This study has undertaken an econometric analysis of economic transformation and income velocity of broad money. To find out the relevant determinants of income velocity of money this paper used time series data on year basis. This paper focus to discover the key determinants of the velocity of money in Bangladesh using the Augmented Dicky Fuller (ADF) unit root test to inspect the stationary, Engle-Granger residual-based cointegration approach to demonstrate the co-integrating association among variables. The main conclusions of this paper are: (i) relationship exists between the velocity of money and financial development. Other important variables that determine GDP growth show a negative relationship with the velocity of money but maintain a positive relationship with the deposit interest rate. Finally, this study concludes by giving some policy recommends for Bangladesh with respect to the velocity of broad money and the monetary policy.

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

“…However, in short-term estimations, inflation has a significant negative effect on the income velocity of money. These results are different from those of previous studies by Al-Tamimi [31], Luo, et al [19], Roy, et al [20], and Khanom [28], which found that the relationship between velocity of money and inflation is positive. Depending on how it affects money balances and income growth more generally, inflation's influence on the velocity of money can be either positive or negative.…”

“…Thus, economic growth partially has long-and short-run effects on the income velocity of money in Indonesia. In the study by Khanom [28], economic growth was found to have a negative impact on the income velocity of money in Model 1 and a positive effect in Model 2. Income velocity shows how quickly or frequently people use their income as a means of payment for economic transactions.…”

“…The results show that all variables affect the income velocity of money. Khanom [28] conducted a study to find out how GDP growth, demand deposit (DD) to time deposit ratio (TD), inflation (INF), and lending interest rate (LINT) influence the velocity of money in Bangladesh. The results suggest that GDP growth negatively impacts the velocity of money in Model 1 and positively affects it in Model 2.…”

The Impact of BI Rate, Exchange Rate, and Inflation on Broad Money in Indonesia

“…This result is proven by the hypothesis assumed by previous researchers. The results of this study obtained the same results as the research conducted by Susmiati et al (2021), Khanom (2019), Firmansyah (2016), and Jumhur et al (2018. An increase in the money supply will have a major impact on increasing inflation in the country.…”

Do Income Leakage Variables have A Positive or Negative Impact on the Performance of the Economy? Empirical Study on Egypt

“…The study of Khanom (2019) examined the determinants of the velocity of money in Bangladesh during the period 1972-2015.…”