Income Velocity of Money: A Case Study of Pakistan

Abstract

The aim of this paper is to analyse the policy of monetary expansion followed in Pakistan and examine the effect it had on the price-stability in the economy. Credit control policies, whose main objective is to influence expenditures on domestic and foreign goods, is rendered ineffective to a certain degree by the use of the existing savings of the private sector. This use of the savings can be measured in terms of changes in the velocity of money. Since the effectiveness of credit control policy depends on the decisions of savers, an analysis of the short-run behaviour of income velocity is crucial to monetary policy formulation.