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Money and Productive Efficiency: Evidence from a High-Inflation Country

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  • Erdem Başçi
  • Syed F. Mahmud
  • Eray M. Yucel

Abstract

This paper examines how money balances held by manufacturing firms affect their efficiency in generating sales revenue in a high-inflation economy. The analysis employs data from Turkish firms to estimate a stochastic frontier model, finding a strong positive association between the firms' money holdings and their efficiency. However, the role of money balances seems to diminish as firms hold higher raw material inventories.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 43 (2007)
Issue (Month): 1 (February)
Pages: 64-73

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Handle: RePEc:mes:emfitr:v:43:y:2007:i:1:p:64-73

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

Related research

Keywords: high inflation; inventories; manufacturing; money demand by firms; stochastic frontier estimation; Turkey;

References

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  1. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  2. Jansen, Dennis W, 1985. "Real Balances in an Ad Hoc Keynesian Model and Policy Ineffectiveness: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(3), pages 378-86, August.
  3. Sinai, Allen & Stokes, Houston H, 1972. "Real Money Balances: An Omitted Variable from the Production Functions?," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 290-96, August.
  4. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan & Oleksandr Talavera, 2004. "The Impact of Macroeconomic Uncertainty on Cash Holdings for Non–Financial Firms," Discussion Papers in Economics 04/19, Department of Economics, University of Leicester.
  5. Faruk Selcuk, 1997. "A Brief Account of the Turkish Economy, 1987-1996," Departmental Working Papers 971, Bilkent University, Department of Economics.
  6. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
  7. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1996. "Sticky price and limited participation models of money: a comparison," Working Paper Series, Macroeconomic Issues WP-96-28, Federal Reserve Bank of Chicago.
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  9. Erdem Basci & Ismail Saðlam, 2000. "Optimal Money Growth in A Limited Particpation Model with Heterogenous Agents," Departmental Working Papers 0004, Bilkent University, Department of Economics.
  10. Domberger, Simon, 1987. "Relative Price Variability and Inflation: A Disaggregated Analysis," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 547-66, June.
  11. Dennis, Enid & Smith, V Kerry, 1978. "A Neoclassical Analysis of the Demand for Real Cash Balances by Firms," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 793-813, October.
  12. Mustafa Caglayan & Alpay Filiztekin, 2001. "Nonlinear Impact of Inflation on Relative Price Variability," Research Papers 2001_02, University of Liverpool Management School, revised 01 Oct 2002.
  13. Jon Harkness, 1984. "Optimal Oil Pricing in a Small Open Economy: A Macro-economic Perspective," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 762-73, November.
  14. Hasan, M Aynul & Mahmud, Syed F, 1993. "Is Money an Omitted Variable in the Production Function? Some Further Results," Empirical Economics, Springer, vol. 18(3), pages 431-45.
  15. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
  16. Simos, Evangelos O., 1981. "Real money balances as a productive input : Further evidence," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 207-225.
  17. Nourzad, Farrokh, 2002. "Real money balances and production efficiency: a panel-data stochastic production frontier study," Journal of Macroeconomics, Elsevier, vol. 24(1), pages 125-134, March.
  18. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
  19. Parsley, David C, 1996. "Inflation and Relative Price Variability in the Short and Long Run: New Evidence from the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 323-41, August.
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