The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan

Mohammad Al-Masaeid

doi:doi:10.11648/j.eco.20221102.12

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The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan

Mohammad Al-Masaeid

Published in Economics (Volume 11, Issue 2)

Received: 18 April 2022 Accepted: 3 May 2022 Published: 12 May 2022

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Abstract

This paper aimed to analyze the effect of the financial progress that happened in the Jordanian economy on the velocity of money in circulation from the period 1980 to 2019. Specifically, the ratio of demand deposits to time deposits and the share of credit facilities to the private sector from GDP were used as measures of financial development while money supply (1) to GDP and money supply (2) to GDP were used as measures of the velocity of money. To achieve these goals, the paper has used the descriptive approach and the Auto-Regressive Distribution Lag (ARDL) approach. The tests showed that the variables became stationary after taking the first difference, and the variables are co-integration. The results of the study showed that. The ARDL model and cointegration test used in the paper reveal that the estimated parameters of the explanatory variables were more significant in the long term model and short term than in the short term it was not except for dynamics for the velocity of broad money (V2). The share of credit facilities to the private sector from GDP has a significant negative effect on the velocity of narrow money (V1) and has a considerable positive effect on the velocity of money in the wide range (V2). adding to the previous point, the ratio of demand deposits to time deposits has a significant positive effect on the velocity of narrow money (V1) and has a significant negative effect on the velocity of wide money (V2). finally, the interest rate has a substantial positive influence on both the velocity of money in a narrow and a wide range. Based on the results, the paper recommended the central bank of Jordan set strategies to stabilize the money demand function in the Jordanian economy. Since the dynamic change in life, communication and accessing the information the behavior of individuals regarding assets loans and spending is changing rapidly which leading to massive challenges to central banks’ policy formulation regarding the velocity of money.

Published in	Economics (Volume 11, Issue 2)
DOI	10.11648/j.eco.20221102.12
Page(s)	76-87
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2022. Published by Science Publishing Group

Keywords

Money Supply, GDP, Monetary Policy, Financial Development, Velocity of Money, ARDL

References

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Mohammad Al-Masaeid. (2022). The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan. Economics, 11(2), 76-87. https://doi.org/10.11648/j.eco.20221102.12

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Mohammad Al-Masaeid. The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan. Economics. 2022, 11(2), 76-87. doi: 10.11648/j.eco.20221102.12

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AMA Style

Mohammad Al-Masaeid. The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan. Economics. 2022;11(2):76-87. doi: 10.11648/j.eco.20221102.12

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@article{10.11648/j.eco.20221102.12,
  author = {Mohammad Al-Masaeid},
  title = {The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan},
  journal = {Economics},
  volume = {11},
  number = {2},
  pages = {76-87},
  doi = {10.11648/j.eco.20221102.12},
  url = {https://doi.org/10.11648/j.eco.20221102.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20221102.12},
  abstract = {This paper aimed to analyze the effect of the financial progress that happened in the Jordanian economy on the velocity of money in circulation from the period 1980 to 2019. Specifically, the ratio of demand deposits to time deposits and the share of credit facilities to the private sector from GDP were used as measures of financial development while money supply (1) to GDP and money supply (2) to GDP were used as measures of the velocity of money. To achieve these goals, the paper has used the descriptive approach and the Auto-Regressive Distribution Lag (ARDL) approach. The tests showed that the variables became stationary after taking the first difference, and the variables are co-integration. The results of the study showed that. The ARDL model and cointegration test used in the paper reveal that the estimated parameters of the explanatory variables were more significant in the long term model and short term than in the short term it was not except for dynamics for the velocity of broad money (V2). The share of credit facilities to the private sector from GDP has a significant negative effect on the velocity of narrow money (V1) and has a considerable positive effect on the velocity of money in the wide range (V2). adding to the previous point, the ratio of demand deposits to time deposits has a significant positive effect on the velocity of narrow money (V1) and has a significant negative effect on the velocity of wide money (V2). finally, the interest rate has a substantial positive influence on both the velocity of money in a narrow and a wide range. Based on the results, the paper recommended the central bank of Jordan set strategies to stabilize the money demand function in the Jordanian economy. Since the dynamic change in life, communication and accessing the information the behavior of individuals regarding assets loans and spending is changing rapidly which leading to massive challenges to central banks’ policy formulation regarding the velocity of money.},
 year = {2022}
}

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TY  - JOUR
T1  - The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan
AU  - Mohammad Al-Masaeid
Y1  - 2022/05/12
PY  - 2022
N1  - https://doi.org/10.11648/j.eco.20221102.12
DO  - 10.11648/j.eco.20221102.12
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 76
EP  - 87
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20221102.12
AB  - This paper aimed to analyze the effect of the financial progress that happened in the Jordanian economy on the velocity of money in circulation from the period 1980 to 2019. Specifically, the ratio of demand deposits to time deposits and the share of credit facilities to the private sector from GDP were used as measures of financial development while money supply (1) to GDP and money supply (2) to GDP were used as measures of the velocity of money. To achieve these goals, the paper has used the descriptive approach and the Auto-Regressive Distribution Lag (ARDL) approach. The tests showed that the variables became stationary after taking the first difference, and the variables are co-integration. The results of the study showed that. The ARDL model and cointegration test used in the paper reveal that the estimated parameters of the explanatory variables were more significant in the long term model and short term than in the short term it was not except for dynamics for the velocity of broad money (V2). The share of credit facilities to the private sector from GDP has a significant negative effect on the velocity of narrow money (V1) and has a considerable positive effect on the velocity of money in the wide range (V2). adding to the previous point, the ratio of demand deposits to time deposits has a significant positive effect on the velocity of narrow money (V1) and has a significant negative effect on the velocity of wide money (V2). finally, the interest rate has a substantial positive influence on both the velocity of money in a narrow and a wide range. Based on the results, the paper recommended the central bank of Jordan set strategies to stabilize the money demand function in the Jordanian economy. Since the dynamic change in life, communication and accessing the information the behavior of individuals regarding assets loans and spending is changing rapidly which leading to massive challenges to central banks’ policy formulation regarding the velocity of money.
VL  - 11
IS  - 2
ER  -

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Author Information

Mohammad Al-Masaeid

Department of Economics, Faculty of Economics and Administrative Sciences, Yarmouk University, Irbid, Jordan

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APA Style

Mohammad Al-Masaeid. (2022). The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan. Economics, 11(2), 76-87. https://doi.org/10.11648/j.eco.20221102.12

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ACS Style

Mohammad Al-Masaeid. The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan. Economics. 2022, 11(2), 76-87. doi: 10.11648/j.eco.20221102.12

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AMA Style

Mohammad Al-Masaeid. The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan. Economics. 2022;11(2):76-87. doi: 10.11648/j.eco.20221102.12

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@article{10.11648/j.eco.20221102.12,
  author = {Mohammad Al-Masaeid},
  title = {The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan},
  journal = {Economics},
  volume = {11},
  number = {2},
  pages = {76-87},
  doi = {10.11648/j.eco.20221102.12},
  url = {https://doi.org/10.11648/j.eco.20221102.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20221102.12},
  abstract = {This paper aimed to analyze the effect of the financial progress that happened in the Jordanian economy on the velocity of money in circulation from the period 1980 to 2019. Specifically, the ratio of demand deposits to time deposits and the share of credit facilities to the private sector from GDP were used as measures of financial development while money supply (1) to GDP and money supply (2) to GDP were used as measures of the velocity of money. To achieve these goals, the paper has used the descriptive approach and the Auto-Regressive Distribution Lag (ARDL) approach. The tests showed that the variables became stationary after taking the first difference, and the variables are co-integration. The results of the study showed that. The ARDL model and cointegration test used in the paper reveal that the estimated parameters of the explanatory variables were more significant in the long term model and short term than in the short term it was not except for dynamics for the velocity of broad money (V2). The share of credit facilities to the private sector from GDP has a significant negative effect on the velocity of narrow money (V1) and has a considerable positive effect on the velocity of money in the wide range (V2). adding to the previous point, the ratio of demand deposits to time deposits has a significant positive effect on the velocity of narrow money (V1) and has a significant negative effect on the velocity of wide money (V2). finally, the interest rate has a substantial positive influence on both the velocity of money in a narrow and a wide range. Based on the results, the paper recommended the central bank of Jordan set strategies to stabilize the money demand function in the Jordanian economy. Since the dynamic change in life, communication and accessing the information the behavior of individuals regarding assets loans and spending is changing rapidly which leading to massive challenges to central banks’ policy formulation regarding the velocity of money.},
 year = {2022}
}

Copy | Download

TY  - JOUR
T1  - The Role of Financial Development in Determining the Velocity of Money in Circulation: The Case of Jordan
AU  - Mohammad Al-Masaeid
Y1  - 2022/05/12
PY  - 2022
N1  - https://doi.org/10.11648/j.eco.20221102.12
DO  - 10.11648/j.eco.20221102.12
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 76
EP  - 87
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20221102.12
AB  - This paper aimed to analyze the effect of the financial progress that happened in the Jordanian economy on the velocity of money in circulation from the period 1980 to 2019. Specifically, the ratio of demand deposits to time deposits and the share of credit facilities to the private sector from GDP were used as measures of financial development while money supply (1) to GDP and money supply (2) to GDP were used as measures of the velocity of money. To achieve these goals, the paper has used the descriptive approach and the Auto-Regressive Distribution Lag (ARDL) approach. The tests showed that the variables became stationary after taking the first difference, and the variables are co-integration. The results of the study showed that. The ARDL model and cointegration test used in the paper reveal that the estimated parameters of the explanatory variables were more significant in the long term model and short term than in the short term it was not except for dynamics for the velocity of broad money (V2). The share of credit facilities to the private sector from GDP has a significant negative effect on the velocity of narrow money (V1) and has a considerable positive effect on the velocity of money in the wide range (V2). adding to the previous point, the ratio of demand deposits to time deposits has a significant positive effect on the velocity of narrow money (V1) and has a significant negative effect on the velocity of wide money (V2). finally, the interest rate has a substantial positive influence on both the velocity of money in a narrow and a wide range. Based on the results, the paper recommended the central bank of Jordan set strategies to stabilize the money demand function in the Jordanian economy. Since the dynamic change in life, communication and accessing the information the behavior of individuals regarding assets loans and spending is changing rapidly which leading to massive challenges to central banks’ policy formulation regarding the velocity of money.
VL  - 11
IS  - 2
ER  -

Copy | Download