Levent, Korap (2007): Turkish money demand, revisited: some implications for inflation and currency substitution under structural breaks. Published in: Boğaziçi Journal, Review of Social, Economic and Administrative Studies , Vol. 21, No. 12 (2007): pp. 107127.

PDF
MPRA_paper_19479.pdf Download (277Kb)  Preview 
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 cointegration 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.
Item Type:  MPRA Paper 

Original Title:  Turkish money demand, revisited: some implications for inflation and currency substitution under structural breaks 
English Title:  Turkish money demand, revisited: some implications for inflation and currency substitution under structural breaks 
Language:  English 
Keywords:  Money Demand ; Inflation ; Currency Substitution ; Turkish Economy ; 
Subjects:  C  Mathematical and Quantitative Methods > C3  Multiple or Simultaneous Equation Models; Multiple Variables > C32  TimeSeries Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models E  Macroeconomics and Monetary Economics > E5  Monetary Policy, Central Banking, and the Supply of Money and Credit > E52  Monetary Policy E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E41  Demand for Money 
Item ID:  19479 
Depositing User:  Levent Korap 
Date Deposited:  21. Dec 2009 06:06 
Last Modified:  12. Feb 2013 20:57 
References:  AbuQarn, A.S. and AbuBader, S. (2007). “Structural Breaks in Military Expenditures: Evidence for Egypt, Israel, Jordan and Syria,” Monaster Center for Economic ResearchDiscussion Paper, June, No. 0704. Akıncı, O. (2003). “Modeling the Demand for Currency Issued in Turkey,” Central Bank Review, 1: 125. Altınkemer, M. (2004). “Importance of Base Money Even When Inflation Targeting,” CBRT Research Department Working Paper, No. 04/04. BahmaniOskooee, M. and Bohl, M. (2000). “German Monetary Unification and the Stability of LongRun German Money Demand Function,” Economics Letters, 66: 203208. BahmaniOskooee, M. and Karacal, M. (2006). “The Demand for Money in Turkey and Currency Substitution,” Applied Economics Letters, 13: 635642. Banerjee, A., Lumsdaine, R.L., and Stock, J.H.(1992). “Recursive and Sequential Tests of the Unit Root and Trend Break Hypothesis,” Journal of Business and Economic Statistics, 10: 271287. Baumol, W.J. (1952). “The Transactions Demand for Cash: An Inventory Theoretic Approach,” Quarterly Journal of Economics, 66: 545556. Calvo, G.A. and Leiderman, L. (1992). “Optimal Inflation Tax under Precommitment: Theory and Evidence,” American Economic Review, 82(1): 179194. Choudhry, T. (1995). “High Inflation Rates and the LongRun Money Demand Function: Evidence from Cointegration Tests,” Journal of Macroeconomics, 17(1): 7791. Civcir, I. (2000). “Broad Money Demand, Financial Liberalization and Currency Substitution in Turkey,” Paper Presented to the 7th Annual Conferenceof ERF, 2629 September, Amman. Civcir, I. (2003). “Broad Money Demand and Currency Substitution in Turkey,” The Journal of Developing Areas, 36: 127144. Clemente, J., Montanes, A., and Reyes, M. (1998). “Testing for a Unit Root in Variables with a Double Change in the Mean,” Economics Letters, 59(2): 175182. DeJong, D.N., Nankervis, J.C., Savin, N.E., and Whiteman, C.H. (1989). “Integration versus TrendStationarity in Macroeconomic TimeSeries,” University of Iowa Working Paper Series, December, No. 89/31. Dickey, D.A. and Fuller, W.A. (1979). “Distribution of the Estimators for Autoregressive Time Series with a Unit Root,” Journal of the American Statistical Association, 74: 427431. Dickey, D.A. and Fuller, W.A. (1981). “Likelihood Ratio Statistics for Autoregressive Time Series with Unit Roots,” Econometrica, 49: 10571072. Dotsey, M. and Hornstein, A. (2003). “Should a Monetary Policymaker Look at Money?” Journal of Monetary Economics, 50: 547579. Dreger, C., Reimers, H.E., and Roffia, B. (2006). “LongRun Money Demand in the New EU Member States with Exchange Rate Effects,” European Central Bank Working Paper Series, May: No. 628. Easterly, W.R., Mauro, P., and SchmidtHebbel, K. (1995). “Money Demand and SeigniorageMaximizing Inflation,” Journal of Money, Credit and Banking, 27(2): 583603. Elliott, G., Rothenberg, T.J., and Stock, J.H. (1996). “Efficient Tests for an Autoregressive Unit Root,” Econometrica, 64: 813836. Estrella, A. and Mishkin, F.S. (1997). “Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy?” Journal of Monetary Economics, 40: 279304. Friedman, M. (1956). “The Quantity Theory of Money  a Restatement,” in M. Friedman (ed.), Studies in the Quantity Theory of Money: 321. The University of Chicago Press. Friedman, M. (1959). “The Demand for Money: Some Theoretical and Empirical Results,” Journal of Political Economy, 67(4): 327351. Goldfeld, S.M. (1973). “The Demand for Money Revisited,” Brookings Papers on Economic Activity, 3: 577638. Goldfeld, S.M. (1976). “The Case of Missing Money,” Brookings Papers on Economic Activity, 3: 683730. Goldfeld, S.M. and Sichel, D.E. (1990). “The Demand for Money,” in B. M. Friedman and F.H. Hahn (eds.), Handbook of Monetary Economics, 1: 300356. Gonzalo, J. (1994). “Five Alternative Methods of Estimating LongRun Equilibrium Relationships,” Journal of Econometrics, 60: 203233. Granger, C.W.J. and Newbold, P. (1974). “Spurious Regressions in Economics,” Journal of Econometrics, 2(2): 111120. Hafer, R.W. and Kutan, A.M. (1994). “Economic Reforms and LongRun Money Demand in China: Implications for Monetary Polic,” Southern Economic Journal, 60(4): 936945. Harris, R.I.D. (1995). Using Cointegration Analysis in Econometric Modelling. Prentice Hall. Johansen, S. (1992). “Determination of Cointegration Rank in the Presence of a Linear Trend,” Oxford Bulletin of Economics and Statistics, 54(3): 383397. Johansen, S. (1995). Likelihoodbased Inference in Cointegrated Vector Autoregressive Models. Oxford University Press. Judd, J.P. and Scadding, J.L. (1982). “The Search for a Stable Money Demand Function: A Survey of the Post1973 Literature,” Journal of Economic Literature, 20(3): 9931023. Kontolemis, Z.G. (2002). “Money Demand in the Euro Area: Where Do We Stand (Today)?” IMF Working Paper, No. 02/185. Kwiatkowski, D., Phillips, P.C.B., Schmidt, P., and Shin, Y. (1992). “Testing the Null Hypothesis of Stationary against the Alternative of a Unit Root,” Journal of Econometrics, 54: 159178. Laidler, E.W.D. (1993). The Demand for Money: Theories, Evidence and Problems, 4th ed. New York: Harper Collins College Publishers. Lütkepohl, H. (1991). Introduction to Multiple Time Series Analysis. New York: SpringerVerlag. MacKinnon, J.G. (1991). “Critical Values for Cointegration Tests,” in R.F. Engle and C.W.J. Granger (eds.), Longrun Economic Relationships: Readings in Cointegration: Ch. 13. Oxford: Oxford University Press. MacKinnon, J.G. (1996). “Numerical Distribution Functions for Unit Root and Cointegration Tests,” Journal of Applied Econometrics, 11: 601618. MacKinnon, J.G., Haug, A.A., and Michelis, L. (1999). “Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration,” Journal of Applied Econometrics, 14: 563577. MacKinnon, J.G. and Milbourne, R.D. (1988). “Are Money Demand Equations Really Price Equations on Their Heads”, Journal of Applied Econometrics, 3: 295305. Mahadeva, L. and Robinson, P. (2004). “Unit Root Testing to Help Model Building,” in A. Blake and G. Hammond (eds.), Handbooks in Central Banking, Centre for Central Banking Studies, Bank of England, July, No. 22 Metin, K. (1994). “Modelling the Demand for Narrow Money in Turkey,” METU Studies in Development, 21: 231256. Mutluer, D. and Barlas, Y. (2002). “Modeling the Turkish Broad Money Demand,” Central Bank Review 2: 5575. Nachega, J.C. (2001). “A Cointegration Analysis of Broad Money Demand in Cameroon,” IMF Working Paper, WP/01/26. OsterwaldLenum, M. (1992). “A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics,” Oxford Bulletin of Economics and Statistics, 54: 461472. Özmen, E. (2003). “Testing the Quantity Theory of Money in Greece,” Applied Economics Letters, 10: 971974. Perron, P. (1989). “The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis,” Econometrica, 57: 13611401. Perron, P. (1990). “Testing for a Unit Root in a Time Series with Changing Mean,” Journal of Business and Economic Statistics, 8: 153162. Ramachandran, M. (2004). “Do Broad Money, Output and Prices Stand for a Stable Relationship in India?” Journal of Policy Modeling, 26: 983,1001. Sriram, S.S. (1999). “Demand for M2 in an EmergingMarket Economy: An ErrorCorrection Model for Malaysia,” IMF Working Paper, WP/99/173. Tobin, J. (1956). “The InterestElasticiy of Transactions Demand for Cash,” The Review of Economics and Statistics, 38(3): 241247. Tobin, J. (1958). “Liquidity Preference as Behavior towards Risk,” The Review of Economic Studies, 25(2): 6586. Yavuz, N.C. (2004). “Durağanlığın Belirlenmesinde KPSS ve ADF Testleri: İMKB Ulusal100 Endeksi ile bir Uygulama,” İ.Ü. İktisat Fakültesi Mecmuası, 54(1): 239247. Zivot, E. and Andrews, D.W.K. (1992). “Further Evidence of Great Crash, the Oil Price Shock and the Unit Root Hypothesis,” Journal of Business and Economic Statistics, 10: 251270 
URI:  http://mpra.ub.unimuenchen.de/id/eprint/19479 