This research empirically examines the determinants of income velocity of money in Bangladesh by employing a Savin-White Box-Cox parametric transformation with first-order serial autocorrelation estimation procedure.

The empirical results indicate that inflation and income variables affect velocity positively. The proxy for financial development (DD/TD) affects velocity negatively, implying that the lower the proxy, the greater the level of financial development and the higher the velocity of money. Unlike other studies, this research uses an alternative proxy for financial development, which appears to provide results consistent with prior research. The development of financial institutions remains at early stage and has not yet reached the stage when velocity-financial development relationship becomes positive.

The positive relationship between income and velocity has one important policy implication. As national income increases, the velocity tend to increase which allows the central bank to reduce money supply to control inflation without affecting the overall expenditure in the economy adversely.