# The Income Velocity of Money: The Ethiopian Case (1960-1998)

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## Date

1999-06

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## Publisher

A.A.U

## Abstract

This study has attempted to evaluate the determinants of income velocity of money defined as the ratio
Of nominal income to money supply in Ethiopia. Two al1ernanve measures Of Velocity are used namely '
Velocity of narrow money and broad money when estimating the Velocity function. velocity is Assumed
to depend on real income Per capita: inflation rate: currency money ratio: Investment Income ratio
and the price Level.
in estimating, the long run velocity equations. We have used the Johansson and Juselius ( (1990)
approach. First the lime series characteristics the data is established using the ADF test and Found
that all of the Variables are integrated of order one except the inflation Variable which is Excluded
from the tests for co integration. The co integration tests show that velocity (based on Broad and narrow
definitions of money) is co integrated with real income Per capita. currency money ratio. Inveslmel1l
income ratio and the Price level. The tests for weak erogeneity reveal that except the currency money
ratio all of the Variables are found to be weakly exogenous. Based on the tests for coinegration and
weak exogeneity . We developed the dynamic model treating currency money ratio as an endogenous
variable. The estimated error correction models show that real income Per capital and the inflation
Variable have significant effects on velocity based on both definitions of money. while currency money
ratio and investment income ratio are not important determinants. The evidence on the Stability of the
estimated models shows that the income velocity function based on narrow and broad Money
definitions has remained stable over the Period of study

## Description

## Keywords

Income, Velocity of Money