DETERMINANTS OF INDONESIA’S INCOME VELOCITY OF MONEY

  • Susan Sunila Sharma Deakin Business School, Deakin University
  • Ferry Syarifuddin
Keywords: Income velocity of money, Unit root; Cointegration; Long-run and short-run elasticities.

Abstract

Using monthly time-series data and both short- and long-run models, our paper examines the determinants of Indonesia’s income velocity of money. Our findings strongly suggest that in the long-run, tax revenue, short-term interest rates, and industrial production, and in the short-run, money demand significantly determines income velocity of money. Our analysis suggests that the effect on income velocity is mostly over the long-run as most determinants are dormant in the short-run. The implication from a policy perspective is that shocks that are transitory are unlikely to burden income velocity.

Published
2019-02-28
Section
Articles