Levent, Korap (2008): Modeling base money demand and inflation for the Turkish economy. Published in: Doğuş University Journal , Vol. 9, No. 2 (2008): pp. 207216.

PDF
MPRA_paper_19617.pdf Download (168kB)  Preview 
Abstract
In this paper, a reserve money demand model is tried to be constructed for the Turkish economy. Using contemporaneous multivariate cointegration methodology for the investigation period 1987Q12007Q3 of the quarterly observations, we find that the real income elasticity of money demand is highly greater than unity which means that there exists an ongoing monetization process with regard to the increases in the real income in the economy. The most important alternative cost against the real money holdings seems to be the expected depreciation rate of the domestic currency against the exchange rate. Such a finding reveals the importance of currency substitution phenomenon dominated in the economy when the economic agents determine the motives of demand for monetary balances. Furthermore, a critical finding estimated in the paper is that domestic inflation has a weakly exogenous characteristic in the money demand variable space which requires no dynamic error correction model constructed on domestic inflation as a function of the excess money demand taken place under the money market disequilibrium conditions.
Item Type:  MPRA Paper 

Original Title:  Modeling base money demand and inflation for the Turkish economy 
English Title:  Modeling base money demand and inflation for the Turkish economy 
Language:  English 
Keywords:  Money demand ; Inflation ; Currency substitution ; Cointegration 
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 > E3  Prices, Business Fluctuations, and Cycles > E31  Price Level ; Inflation ; Deflation E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E41  Demand for Money 
Item ID:  19617 
Depositing User:  Levent Korap 
Date Deposited:  30 Dec 2009 10:02 
Last Modified:  02 Oct 2019 11:22 
References:  AKYUREK, C., (1999). An empirical analysis of postliberalization inflation in Turkey. Yapı Kredi Economic Review, vol. 10/2, December, pp. 3153. AKYUZ, Y.; BORATAV, K. (2003). The making of the Turkish financial crisis, World Development, vol. 31/9, pp. 15491566. ALPER, C.E. (2001). The Turkish liquidity crisis of 2000: what went wrong, Russian and East European Finance and Trade, vol. 37/6, pp. 5171. ALPER, C.E.; UCER, M. (1998). Some observations on Turkish inflation: a “random walk” down the past decade, Bogazici Journal, vol. 12/1, pp. 738. ALTINKEMER, M. (2004). Importance of base money even when inflation targeting, CBRT Research Department Working Paper, no. 04/04, March. BAYDUR, C.M.; SUSLU, B. (2004). The view of Sargent and Wallace on monetary policy: tight monetary policy does not stop inflation: an evaluation of CBRT’s monetary policy for 19872002, Journal of Policy Modeling, vol. 26, pp. 191208. CIVCIR, I. (2000). Broad Money Demand, Financial Liberalization and Currency Substitution in Turkey. Paper Presented at the 7th Annual Conference of ERF, 2629 September, Amman. DICKEY, D.A.; FULLER, W.A. (1979). Distribution of the estimators for autoregressive time series with a unit root, Journal of the American Statistical Association, vol. 74, pp. 427431. DORNBUSCH, R. (2001). A primer on emerging market crises, NBER Working Paper, 8326, June. EICHENGREEN, B. (2001). Crisis preventation and management: any new lessons from Argentina and Turkey?, Background Paper Written for the World Bank’s Global Development Finance 2002, University of California, Berkeley. EKINCI, N.K.; ERTURK, K.A. (2007). Turkish currency crisis of 20002001,revisited, International Review of Applied Economics, 21/1, January, pp. 2941. ERLAT, H. (2002). Long memory in Turkish inflation rates, In: A. KİBRİTÇİOĞLU, L. RITTENBERG and F. SELÇUK (eds.), Inflation and Disinflation in Turkey, Ashgate Pub., pp. 97120. ERTUGRUL, A.; YELDAN, E. (2002). On the structural weakness of the post1999 Turkish disinflation program, Turkish Studies Quarterly, vol. 4/2, pp. 5367. GOLDFAJN, I.; VALDES, R.O. (1999). The aftermath of appreciations, Quarterly Journal of Economics, vol. 114/1, pp. 22962. GONZALO, J. (1994). Five Alternative Methods of Estimating Long  run Equilibrium Relationships, Journal of Econometrics, 60, 20333. GRANGER, C.W.J.; NEWBOLD, P. (1974). Spurious regressions in economics, Journal of Econometrics, 2/2, pp. 111120. HAFER, R.W.; KUTAN, A.M. (1994). Economic reforms and longrun money demand in China: implications for monetary policy. Southern Economic Journal, vol. 60/4 , April, pp. 936945. HARRIS, R.I.D. (1995). Using Cointegration Analysis in Econometric Modelling, 1. ed., Prentice Hall. JOHANSEN, S. (1988). Statistical analysis of cointegration vectors, Journal of Economic Dynamics and Control, 12, pp. 231254. JOHANSEN, S. (1995). Likelihoodbased inference in cointegrated vector autoregressive models, Oxford University Press. 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. JOHANSEN, S. (1992). Determination of cointegration rank in the presence of a linear trend, Oxford Bulletin of Economics and Statistics, Vol. 54/3, pp. 383397. KORU, A.T.; OZMEN, E. (2003). Budget deficits, money growth and inflation: the Turkish evidence. Applied Economics, Vol. 35/5, pp. 591596. LEIGH, D.; ROSSI, M. (2002). Exchange rate passthrough in Turkey. IMF Working Paper, WP/02/2004. LUTKEPOHL, H. (1991). Introduction to multiple time series analysis, New York, SpringerVerlag. MACKINNON, J.G.; HAUG, A.A. ; MICHELIS, L. (1999). Numerical distribution functions of likelihood ratio tests for cointegration. Journal of Applied Econometrics, Vol. 14 , pp. 563577. MACKINNON, J.G.; MILBOURNE, R.D. (1988). Are money demand equations really price equations on their heads?. Journal of Applied Econometrics, Vol. 3, pp. 295305. METINOZCAN, K.; BERUMENT, H.; NEYAPTI, B. (2004). Dynamics of inflation and inflation inertia in Turkey. Journal of Economic Cooperation, Vol. 25/3, pp. 6386. NEYAPTI, B. (1998). Can net domestic assets be a monetary target? The case of Turkey”. Yapı Kredi Economic Review, Vol. 9/2, pp. 2534. 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. 461472. OZMEN, E. (1998). Is currency seigniorage exogenous for inflation tax in Turkey. Applied Economics, Vol. 30/4, pp. 545552. SAATCIOGLU, C. (2005). Türkiye ekonomisindeki enflasyonist sürecin incelenmesine yönelik bir uygulama. METU Studies in Development, Vol. 32, June, pp. 155184. US, V. (2004). Inflation dynamics and monetary policy strategy: some prospects for the Turkish economy. Journal of Policy Modeling, Vol. 26, pp. 10031013. UYGUR, E. (2001). Krizden krize Türkiye: 2000 Kasım ve 2001 Şubat krizleri, TEA Discussion Paper, 2001/1. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/19617 