The Causative Relationship between Money Velocity and the General Level of Prices and the Total local Product in Iraq for the Period

Abstract

AbstractThe study aims to get an idea about the causal relationship between the velocity of money the general level of prices and GDP in order to define the direction of the relationship as well as to the effectiveness of the monetary policy on of Iraqi economy, and that through studying the annual data of time series for the period (1991-2011). The study includes too presenting the theoretical presentations of the economic schools about the relationship among the said variables. As the classical school regarded that the velocity of money circulation is static, at least, in the short term, while kainsyians emphasized that the velocity of money circulation is unstatic due to the effect of interest rates and the icome. We depended on Granger causality test to define the direction of the relationship among variables. The study concluded the there is a causal relationship in one direction between GDP and velocity of money circulation. These results were in accordance with most of the theoretical presentations which were presented the theoretical framework and reference presentation.