THE RELATIONSHIP BETWEEN THE VELOCITY OF CIRCULATION OF MONEY AND GROWTH IN TURKISH ECONOMY

Abstract

Although there is no common consensus among economists, the velocity of money is used as a measure to measure the overall health and dynamism of an economy. While some economists claim that any change in money supply can directly affect the rate of circulation of money and inflation, others argue that the connection between money supply and rate of circulation of money is rather weak. 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. The answer to this question has been sought in econometric analysis. For the Turkish economy, four variables were obtained with quarterly data between the years 2006-2019. These are Real GDP, Inflation, M1 money supply and V1, which is the velocity of circulation of money. According to the model result in which real GDP is included as the dependent variable and the velocity of circulation of money 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 result of the model in which 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 M1 money supply and the velocity of circulation.