This paper aimed to analyze the effect of the financial progress that happened in the Jordanian economy on the velocity of money in circulation from the period 1980 to 2019. Specifically, the ratio of demand deposits to time deposits and the share of credit facilities to the private sector from GDP were used as measures of financial development while money supply (1) to GDP and money supply (2) to GDP were used as measures of the velocity of money. To achieve these goals, the paper has used the descriptive approach and the Auto-Regressive Distribution Lag (ARDL) approach. The tests showed that the variables became stationary after taking the first difference, and the variables are co-integration. The results of the study showed that. The ARDL model and cointegration test used in the paper reveal that the estimated parameters of the explanatory variables were more significant in the long term model and short term than in the short term it was not except for dynamics for the velocity of broad money (V2). The share of credit facilities to the private sector from GDP has a significant negative effect on the velocity of narrow money (V1) and has a considerable positive effect on the velocity of money in the wide range (V2). adding to the previous point, the ratio of demand deposits to time deposits has a significant positive effect on the velocity of narrow money (V1) and has a significant negative effect on the velocity of wide money (V2). finally, the interest rate has a substantial positive influence on both the velocity of money in a narrow and a wide range. Based on the results, the paper recommended the central bank of Jordan set strategies to stabilize the money demand function in the Jordanian economy. Since the dynamic change in life, communication and accessing the information the behavior of individuals regarding assets loans and spending is changing rapidly which leading to massive challenges to central banks’ policy formulation regarding the velocity of money.
Mohammad Al-Masaeid (Thu,) studied this question.