An Evaluation of the Stability of the Money Velocity for Some Monetary Aggregates in Costa Rica

A battery of stationary and cointegration tests is applied to the money velocity series for M1, M2, and term deposits of the private sector in Costa Rica. The aim of the test is to verify whether stable or stationary behavior exists, in which case the quantitative theory would allow to make predictions about prices or the level of economic activity based on a single monetary aggregate. The results of the study show stable relationships among the variables that determine the velocity of circulation of M1, M2, and the term deposits of the private sector (in domestic currency). The rate of growth of the money velocity for the three aggregates has a stable behavior around its mean value. It is then possible to forecast either the level of the economic activity or the behavior of the domestic prices from a predetermined trend of the money velocity using the quantitative theory