Determinants of the Velocity of Money Circulation in Iraq for the Period (2005-2020) Helmy Ibraheem Menshad

Keywords: Velocity of money, Quantity Theory of Money, ARDL Model, Bounds Testing Approach, Diagnostic Tests


This paper presents the different points of view of the classical school, the Keynesian school, and the monetary school regarding the velocity of money circulation. It aims to investigate the determinants of money velocity in Iraq for the period from 2005:1-  to 2020:4, using the autoregressive distributed lag approach (ARDL Model). The results indicate the existence of a long-term equilibrium relationship between the velocity of money circulation and its determinants. When estimating the parameters, it is found that the GDP growth rate has a positive effect on the velocity of money circulation, and it is the only variable that demonstrates statistical significance. Diagnostic tests were conducted, confirming that the model is free from the problems of serial correlation and heteroscedasticity in the error term, as well as demonstrating the stability of the parameters in the long term relationship between the velocity of money circulation and its explanatory variables. Based on these results, the researcher suggests that it is preferable to use the growth rate of the money supply, rather than interest rates as an indicator for measuring the impact of monetary policy on economic activity in Iraq.



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