Artha Vijnana: Journal of The Gokhale Institute of Politics and Economics

M. Ramachandran ¹

Affiliations
1 Department of Economics, University of Mumbai, Mumbai-400 098, IN

Abstract

The income velocity of money measured as the ratio of GDP at current market prices to money stocks - M1 and M3 - is found to display the characteristics of random walk during 1950-51 to 1992-93. Accordingly,  effort has been directed towards searching for an appropriate functional specification for velocity, which accounts for influence of institutional structural and Socio-demographic changes presumed to affect the velocity behaviour. The empirical results derived from alternative specification of velocity equations reveal that failing to take the cognisance of institutional, structural and Socio-demographic variables may produce an upward biased income elasticity of demand for money. Hence, this study arrived at the conclusion that the virtual decline in velocity when real income rises may be taken to suffer from the errors of ignored variables which act as potential shifters of demand for money.

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M. Ramachandran

Abstract

This study investigates the significance of dispersion between the growth rate of some weakly separable monetary asset groups and that of their corresponding monetary aggregates, arising out of non linearity in aggregation. As the aggregates are derived from the Divisia quantity index number the relevant dispersion measures used in the analysis are their second moments. The empirical evidence show that the commonly employed statistical tests - the Granger causality test and the information content test in which both the aggregates and their corresponding dispersion measures appear as arguments, do not require the incorporation of the latter, implying that there is no distributional effect of component assets on the macro behaviour of the aggregates under consideration. Hence, this evidence is attributed to the fact that the Divisia index can track even a non-homogeneous aggregator function and remains appropriate even for changing taste and technology of consumer preference over time.

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