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Empirical model of the behavior of the income velocity of money in Colombia, 1982 - 2001

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  • Gisela P. Zapata

Abstract

Resumen:The study of the income velocity of money is important since monetary factors play a causal role in output fluctuations. The issue of the stability of money demand is critical in assessing the monetary aggregates, M1/M3, usefulness for the formulation of monetary policy. In Colombia, the M1 income velocity of money has been very volatile whereas the M3 velocity has been pretty stable over the last 20 years. Contrary to the assumption underlying the Quantity Theory of Money, the evidence here indicates that the income velocity of money is not constant in Colombia for the 1982 - 2001 period. The statistical results show that there is a positive relationship between the Colombian inflation rate and the M1 and M3 income velocities of money. A higher rate of inflation will translate into a higher nominal interest rate. The higher the interest rates the higher the opportunity cost of holding money and so the greater the income velocity.Resumen:El estudio de la velocidad del dinero es importante porque los factores monetarios juegan un papel fundamental en las fluctuaciones del PIB. La estabilidad de la demanda de dinero es critica en la evaluación de los agregados monetarios, M1 y M3, como instrumentos de formulación de política monetaria. En Colombia en los últimos veinte anos, la velocidad del dinero de M1 ha sido muy volátil mientras que la velocidad del dinero de M3 ha sido estable. En contradicción con la hipótesis fundamental de la Teoría Cuantitativa del Dinero, la evidencia encontrada en este estudio indica que durante el período 1982 - 2001 la velocidad del dinero en Colombia no es constante Los resultados estadísticos muestran que hay una relación positiva entre la tasa de inflación Colombiana y las velocidades del dinero de M1 y M3. Un aumento de la tasa de inflación se traducirá en un aumento de la tasa de interés nominal. Entre más altas las tasas de interés, más alto es el costo de oportunidad de tener dinero en efectivo y por ende, la velocidad del dinero será más alta

Suggested Citation

  • Gisela P. Zapata, 2003. "Empirical model of the behavior of the income velocity of money in Colombia, 1982 - 2001," Revista Ecos de Economía, Universidad EAFIT, October.
    • Handle: RePEc:col:000442:010802
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    File URL: http://publicaciones.eafit.edu.co/index.php/ecos-economia/article/view/1996/2002
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    References listed on IDEAS

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    1. Finn E. Kydland & Scott Freeman, 2000. "Monetary Aggregates and Output," American Economic Review, American Economic Association, vol. 90(5), pages 1125-1135, December.
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    1. Antoni, 2011. "Dynamic relation of money velocity, money volatility and inflation threshold," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 3(3), pages 245-259, April.

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