The nexus between financial innovations and velocity of money: Evidence from Namibia

The study of the velocity for money in an economy is a central issue in central bank policy formulation. This is so because a steady demand for money function is vital for the conduct of effective monetary policy. The study investigated the relationship between financial innovations and the velocity of money in the Namibian economy. Secondary data from the World Bank and Bank of Namibia, covering the period 2000 to 2020. The study relied on the Autoregressive Distributed Lag Model technique to test the relationship. The founding objectives were named to explore whether financial innovation explained the velocity of money and secondly whether there existed a short run or a long-run relationship between the selected variables. The results indicate that financial innovations explain the velocity of money in the economy, and the Error Correction model determined that there was an existent long-run relationship between the variables. The margin of the inverse relationship was evident from the coefficient of - 1.107354, meaning that an increase by one unit change in financial innovation caused a -1.107354 decrease in the velocity of money in the economy. Hence, the study found that both in the short-run and long-run financial sector innovations are inseparably linked with the velocity of money. The model also included two control variables GDP and the opportunity cost of holding money as the theoretical foundation nominate the two variables to also affect money demand which eventually affects velocity of money. The results found that a positive relationship existed between the GDP variable and velocity of money and the magnitude effect of the relationship is shown by the coefficient. The other variable opportunity cost of holding money was found to be statistically insignificant as showed the probability and the t-statistic. From these results, a cautionary advice would be extended to the policymakers to manage this dynamic relationships better as it has a bearing on the monetary policy framework in the case of the velocity of money (money demand function) in an economy

Grantor dc:publisher

University of Namibia

Year dc:date.issued

2022

Author dc:creator

• Uugulu, Tomas Mekondjo

• Financial Innovations
• Velocity of money
• Namibia
• Central bank policy formulation
• World Bank
• Bank of Namibia

Language dc:language.iso

en

Handle dc:identifier.uri

http://hdl.handle.net/11070/3800

OAI identifier oai:identifier

oai:repository.unam.edu.na:11070/3800