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Random walks and monetary velocity in the G-7 countries: new evidence from a multiple variance ratio test

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  • David Karemera
  • Vera Harper
  • Victor Iwuagwu Oguledo

Abstract

The random walk hypothesis (RWH) of the velocity of money has often been supported for the developed economies. The literature is, however, far from unanimous. This paper employs the most recent methodological advances in testing for random walks, the multiple variance ratio test, to re-examine the behaviour of the velocity of money in the G-7 countries. Monetary velocity is computed as the ratio of nominal income to contemporaneous money stock, under alternative definitions of income and money. The empirical results from the present study do not support the RWH in most of the G-7 countries, with the US M1 and M2 velocities as exceptions. Furthermore, the results show that the RWH is sensitive to either the definitions of monetary velocity or the sample period of study.

Suggested Citation

  • David Karemera & Vera Harper & Victor Iwuagwu Oguledo, 1998. "Random walks and monetary velocity in the G-7 countries: new evidence from a multiple variance ratio test," Applied Economics, Taylor & Francis Journals, vol. 30(5), pages 569-578.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:5:p:569-578
    DOI: 10.1080/000368498325552
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    1. Michael R. Darby & James R. Lothian, 1983. "Conclusions on the International Transmission of Inflation," NBER Chapters, in: The International Transmission of Inflation, pages 491-524, National Bureau of Economic Research, Inc.
    2. Michael R. Darby & James R. Lothian & Arthur E. Gandolfi & Anna J. Schwartz & Alan C. Stockman, 1983. "The International Transmission of Inflation," NBER Books, National Bureau of Economic Research, Inc, number darb83-1.
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    Cited by:

    1. 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.
    2. 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.
    3. 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.

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