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MONETARY POLICY AND THE VELOCITY OF MONEY IN GREECE: A COlNTEGRATION APPROACH

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  • Karfakis, Costas I.

Abstract

Long run real money demand and velocity function for the narrow monetary aggregate M1 are tested by means of the cointegration approach developed by Johansen and Juselius (1990). The results support the existence of a systematic relationship between M1-velocity, the rate of interest and the exchange rate. An interesting aspect of the trivariate error correction vector autoregressive analysis is the evidence of bidirectional causality between the exchange rate and velocity. Furthermore, changes in the rate of interest provide information that helps predict future movements of M1-velocity. Finally, the results derived from Engle and Granger (1987) two-step procedure suggest that M1-velocity is subject to control through policy-induced interest rate and exchange rate movements, thus justifying the adoption of M1 as a useful monetary target.

Suggested Citation

  • Karfakis, Costas I., 1991. "MONETARY POLICY AND THE VELOCITY OF MONEY IN GREECE: A COlNTEGRATION APPROACH," Working Papers 160, University of Sydney, School of Economics.
    • Handle: RePEc:syd:wpaper:2123/7399
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    Cited by:

    1. Sophocles N. Brissimis & George Hondroyiannis & P. A. V. B. Swamy & George S. Tavlas, 2003. "Empirical Modelling of Money Demand in Periods of Structural Change: The Case of Greece," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(5), pages 605-628, December.
    2. Mohsen Bahmani-Oskooee & Ferda Halicioglu & Sahar Bahmani, 2017. "Do exchange rate changes have symmetric or asymmetric effects on the demand for money in Turkey?," Applied Economics, Taylor & Francis Journals, vol. 49(42), pages 4261-4270, September.
    3. Christos Karpetis, 2008. "Money, Income and Inflation in Equilibrium – The Case of Greece," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 14(2), pages 205-214, May.
    4. Mohsen Bahmani-Oskooee & Dan Xi & Sahar Bahmani, 2016. "Asymmetric effects of exchange rate changes on the demand for money in China," Applied Economics Letters, Taylor & Francis Journals, vol. 23(15), pages 1104-1109, October.
    5. Nicholas Apergis & Sophia Eleftheriou, 2000. "Measuring Price Elasticity of Aggregate Demand in Greece: 1961-1995," Public Finance Review, , vol. 28(5), pages 452-467, September.
    6. Tomader Elhassan, 2021. "Asymmetric Impact of Exchange Rate Fluctuations on Money Demand in Sudan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(5), pages 406-417, May.
    7. Havva KOÇ & Ayhan UÇAK, 2022. "The Relationship Between The Velocity Of Circulation Of Money And Growth In Turkish Economy," Eurasian Eononometrics, Statistics and Emprical Economics Journal, Eurasian Academy Of Sciences, vol. 22(22), pages 14-33, September.

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