Money circulation speed and its impact on money demand in Morocco

Abstract

The objective of this paper is to propose a theoretical model for estimating the speed of money circulation in Morocco. This concept is closely related to the implications of the estimation and stability of the demand for money. Theoretically, this relationship is identified in a monetarist framework and consists of an equation linking the amount of real cash held by the public to a scale variable and the opportunity cost of holding it. This investigation is applied to quarterly data covering the period from the first quarter of 2007 to the last quarter of 2020. The estimates were based on several equations (assumptions), including the one that measures the demand for money in the long term, its dynamics in the short term, and the one that captures an empirical estimate of the speed of money circulation. The results confirm that there is indeed a cointegrating relationship in the money demand equation and that the parity of the long-term coefficients is not rejected, which makes the estimation of the speed of money circulation possible. In this case, the results state that the spreads of short and long rates can approximate the opportunity cost of holding money, which makes the speed of money circulation high.