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Determinants of reserve money demand: a multivariate co-integrating approach

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  • Korap, Levent

Abstract

In this paper, a reserve money demand model is constructed for the Turkish economy. Base on the contemporaneous multivariate co-integration estimation methodology, our findings indicate that the main alternative costs to hold reserve money balances in hand are the expected exchange rate depreciation representing ongoing currency substitution phenomenon in the economy and the equity prices. The semi-elasticity of domestic inflation reveals high degree of substitutability between real monetary balances and durable commodities. Furthermore, there exists evidence in favor of the effects of financial development on the money demand function in the sense that diversification of financial tools held in hand against demand for money balances is a necessary condition for the determination of long-run course of the monetary policy.

Suggested Citation

  • Korap, Levent, 2008. "Determinants of reserve money demand: a multivariate co-integrating approach," MPRA Paper 25525, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:25525
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    References listed on IDEAS

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    More about this item

    Keywords

    Reserve Money Demand; Co-integration; 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
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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