The Effect of the Velocity of M3 on GDP: The Case of Türkiye

Abstract

In light of the views that contributed to the history of economic thought, proposing the velocity of money as an indicator to evaluate the general balance of the economy is the subject of this study. In this sense, the evaluation of the velocity circulation of money together with the macroeconomic performance criteria has been the basic idea for the econometric modeling of the study. The motivation of this study is the question of how the velocity of money affects Real GDP, which is a measure of macroeconomic performance, and how the variables determined as macroeconomic performance measures affect the velocity of money. In econometric analysis, the answer to this question was sought with the Ordinary Least Squares (OLS) method. For the Turkish economy, four variables were obtained with quarterly data between 2006 and 2019. These are Real GDP, Inflation, M3 money supply, and V3, which is the velocity of circulation of the M3 money supply. According to the model result, real GDP is included as the dependent variable and the velocity of circulation of the large money supply is selected as the independent variable. There is a positive relationship between real GDP and the velocity of money in the same direction. According to the model's result, the variables selected for macroeconomic performance are taken independently and the velocity of money is taken as the dependent variable; There is a positive relationship between real GDP and the velocity of money in the same direction. A positive correlation was found between the inflation variable and the circulation rate in the same direction. There is an inverse negative relationship between the M3 money supply and the velocity of circulation.