Empirical study of velocity of money in India - trends and its implications
by Abhinav Singh
International Journal of Economic Policy in Emerging Economies (IJEPEE), Vol. 18, No. 2, 2023

Abstract: In this paper, empirical study of quarterly velocity of money for the Indian economy was carried out for the period spanning from 2004 to 2014. The study establishes that the velocity of money is highly predictable and is dependent on certain macro-economic factors such as interest rates, cash-deposit ratio and GDP. We found a stable velocity trend which affirms the indirect transmission of money in the economy. These findings are significant as money stocks growth projection is an important intermediate goal for Reserve Bank of India to effectively implement the framework of flexible inflation targeting. In this paper, we have also studied the behaviour of cash-deposit ratio and found that it follows a random-walk model.

Online publication date: Mon, 18-Dec-2023

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