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Turkish money demand, revisited: some implications for inflation and currency substitution under structural breaks

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  • Levent, Korap

Abstract

In this paper, a money demand model constructed on currency in circulation is used to determine the appropriate alternative cost to hold monetary balances in the Turkish economy. Our estimation results, using contemporaneous multivariate co-integration methodology, indicate that the most significant alternative cost to demand for money is the depreciation rate of the nominal exchange rate. This brings out the importance of having a currency substitution phenomenon settled in the economy when economic agents make their decisions as to their monetary transactions. Moreover, we find that domestic inflationary framework has been subject to a weakly exogenous characteristic and conclude that the main factors leading to domestic inflation are determined out of the money demand variable space.

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  • Levent, Korap, 2007. "Turkish money demand, revisited: some implications for inflation and currency substitution under structural breaks," MPRA Paper 19479, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:19479
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    Cited by:

    1. Onur ÖZDEMİR, 2020. "Revisiting the Finance-Growth Nexus in Turkey: Bayer-Hanck Combined Cointegration Approach over the 1970-2016 Period," Sosyoekonomi Journal, Sosyoekonomi Society, issue 28(44).
    2. Hyunjoo Ryou & Cristina Terra, 2015. "Exchange Rate Dynamics under Financial Market Frictions," THEMA Working Papers 2015-03, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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    More about this item

    Keywords

    Money Demand ; Inflation ; Currency Substitution ; Turkish Economy ;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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