Korap, Levent (2010): Testing homogeneity for real income and prices in a money demand equation: the case of Turkey. Published in: İstanbul Üniversitesi İktisat Fakültesi Maliye Araştırma Merkezi Konferansları , Vol. 53, (2010): pp. 5976.

PDF
MPRA_paper_30086.pdf Download (307kB)  Preview 
Abstract
In this paper, money demand models using narrowly and broadlydefined monetary aggregates have been tried to be constructed for the Turkish economy. Using some contemporaneous cointegration estimation techniques for the 19872007 period with quarterly data, our findings indicate that for the narrowlydefined monetary aggregates the unit real income elasticity assumption cannot be rejected, but no such a finding can be obtained for the unit price elasticity assumption. For the broadlydefined monetary aggregates the reverse is true, that is, the unit price elasticity assumption cannot be rejected, but we are unable to give support to the unit real income elasticity. Furthermore, we find that interest rate as an alternative cost to holding money is only statistically significant for the broad money demand equation.
Item Type:  MPRA Paper 

Original Title:  Testing homogeneity for real income and prices in a money demand equation: the case of Turkey 
English Title:  Testing homogeneity for real income and prices in a money demand equation: the case of Turkey 
Language:  English 
Keywords:  Money Demand; Prices; Real Income; Homogeneity; 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 ; Diffusion Processes ; State Space Models E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E41  Demand for Money 
Item ID:  30086 
Depositing User:  Levent Korap 
Date Deposited:  11. Apr 2011 12:48 
Last Modified:  08. Mar 2015 16:39 
References:  ALTINKEMER, M. (2004), “Importance of Base Money Even When Inflation Targeting”, CBRT Research Department Working Paper, No. 04/04. BAHMANIOSKOOEE, M., KARACAL, M. (2006), “The Demand for Money in Turkey and Currency Substitution”, Applied Economics Letters, Vol. 13, pp. 63542. BAUMOL, W.J. (1952), “The Transactions Demand for Cash: An Inventory Theoretic Approach”, Quarterly Journal of Economics, Vol. 66, pp. 54556. CHOUDHRY, T. (1995), “High Inflation Rates and the LongRun Money Demand Function: Evidence from Cointegration Tests”, Journal of Macroeconomics, Vol. 17, No. 1, pp. 7791. CIVCIR, İ. (2003), “Broad Money Demand and Currency Substitution in Turkey”, Journal of Developing Areas, Vol. 36, pp. 12744. COOLEY, T.F., LEROY, S. (1981), “Identification and Estimation of Money Demand”, American Economic Review, Vol. 71, No. 5, pp. 82544. DEKLE, R., PRADHAN, M. (1997), “Financial Liberalization and Money Demand in ASEAN Countries: Implications for Monetary Policy”, IMF Working Paper, No. 97/36. DICKEY, D.A., FULLER, W.A. (1981), “Likelihood Ratio Statistics for Autoregressive Time Series with Unit Roots”, Econometrica, Vol. 49, pp. 1057072. ELLIOT, G., ROTHENBERG, T.J. and STOCK, J.H. (1996), “Efficient Tests for an Autoregressive Unit Root”, Econometrica, Vol. 64, pp. 81336. ENGLE, R.F., GRANGER, C.W.J. (1987), “Cointegration and Error Correction: Representation, Estimation, and Testing”, Econometrica, Vol. 55, pp. 25176. FRIEDMAN, M. (1959), “The Demand for Money: Some Theoretical and Empirical Results”, Journal of Political Economy, Vol. 67, No. 4, pp. 32751. FRIEDMAN, B.M., KUTNER, K.N. (1992), “Money, Income, Prices and Interest Rates”, American Economic Review, vol. 82, No. 3, pp. 47292. FUNKE, N., THORNTON, J. (1999), “The Demand for Money in Italy, 18611988”, Applied Economics Letters, Vol. 6, pp. 299301. GONZALO, J. (1994), “Five Alternative Methods of Estimating LongRun Equilibrium Relationships”, Journal of Econometrics, Vol. 60, pp. 20333. GÖKTAŞ, Ö. (2005), Teorik ve Uygulamalı Zaman Serileri Analizi. İstanbul: Beşir Kitabevi. GRANGER, C.W.J., NEWBOLD, P. (1974), “Spurious Regressions in Economics”, Journal of Econometrics, Vol. 2, No. 2, pp. 11120. HAFER, R.W., KUTAN, A.M. (1994), “Economic Reforms and LongRun Money Demand in China: Implications for Monetary Policy”, Southern Economic Journal, Vol. 60, No. 4, pp. 93645. HARRIS, R. and SOLLIS, R. (2003), Applied Time Series Modelling and Forecasting, John Wiley & Sons Ltd., England. HOFFMAN, D.L. and RASCHE, R.H. (1996), Aggregate Money Demand Functions, Kluwer Academic Publishers. JEVONS, W.S. (1884), Investigations in Currency and Finance, London: MacMillan. JOHANSEN, S. (1988), “Statistical Analysis of Cointegration Vectors”, Journal of Economic Dynamics and Control, Vol. 12, pp. 23154. JOHANSEN, S. (1992), “Determination of Cointegration Rank in the Presence of a Linear Trend”, Oxford Bulletin of Economics and Statistics, Vol. 54, No. 3, pp. 38397. JOHANSEN, S., JUSELIUS, K. (1990), “Maximum Likelihood Estimation and Inference on Cointegrationwith Applications to the Demand for Money”, Oxford Bulletin of Economics and Statistics, Vol. 52, pp. 169210. JUDD, J.P., SCADDING, J.L. (1982), “The Search for a Stable Money Demand Function: A Survey of the Post1973 Literature”, Journal of Economic Literature, vol. 20, No. 3, pp. 9931023. LAIDLER, E.W.D. (1993), The Demand for Money: Theories, Evidence and Problems. 4th ed. New York: Harper Collins College Publishers. METIN, K. (1994), “Modelling The Demand for Narrow Money in Turkey”, METU Studies in Development, Vol. 21, No. 2, pp. 23156. METIN, K. (1995), The Analysis of Turkish Inflation: The Case of Turkey (1948 – 1988), Capital Markets Board, Pub. No: 20. MILLER, S.M. (1991), “Monetary Dynamics: An Application of Cointegration and ErrorCorrection Modeling”, Journal of Money, Credit, and Banking, Vol. 23, No. 2, pp. 13954. 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, Vol. 54, pp. 46172. ÖZMEN, E. (1998), “Is Currency Seigniorage Exogeneous for Inflation Tax in Turkey”, Applied Economics, Vol. 30, No. 4, pp. 54552. PERRON, P. (1989), “The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis”, Econometrica, Vol. 57, pp. 1361401. SRIRAM, S.S. (2001), “A Survey of Recent Empirical Money Demand Studies”, IMF Staff Papers, Vol. 47, No. 3, pp. 33465. THORNTON, J. (1998), “The Longrun Demand for Currency and Broad Money in Italy, 18611980”, Applied Economics Letters, Vol. 5, pp. 15759. TOBIN, J. (1956), “The InterestElasticiy of Transactions Demand for Cash”, Review of Economics and Statistics, Vol. 38, No. 3, pp. 24147. TOBIN, J. (1958), “Liquidity Preference as Behavior towards Risk”, Review of Economic Studies, Vol. 25, No. 2, pp. 6586. YULE, G. (1926), “Why do We Sometimes Get Nonsense Correlations between Time Series? A Study in Sampling and the Nature of Time Series”, Journal of Royal Statistical Society, Vol. 89, pp. 164. 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, Vol. 10, pp. 25170. 
URI:  http://mpra.ub.unimuenchen.de/id/eprint/30086 