An empirical analysis of income velocity and the variability of money growth in Turkey: Evidence from asymmetric cointegration approach

WOS: 000310183300003An empirical analysis of income velocity and the variability of money growth in Turkey : Evidence from asymmetric cointegration approach Friedman (1984) claims that increased variability in the growth of money supply causes income velocity to decline and that an increase in uncertainty about the future course of monetary growth leads individuals to hold more money thus reducing income velocity. This paper attempts to test Friedman velocity hypothesis by examining the relationship between income velocity and monetary growth variability for Turkey during the period 1987Q1-2010Q3, using linear and nonlinear time series methods. To this end, both unit root and cointegration tests with structural break as well as asymmetric cointegration and error correction models proposed by Enders and Granger (1998), Enders and Siklos (2001) are employed. The empirical results indicate that there is a long-run equilibrium relationship between income velocity and monetary growth variability derived from EGARCH model. Furthermore, the results of the asymmetric error correction model provide evidence of significant bi-directional causality between monetary growth variability and velocity