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Modeling the Demand for Currency Issued in Turkey

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  • Ozge Akinci

Abstract

The purpose of this study is to investigate the empirical relationship between real money balances, real income, and the opportunity cost variables in Turkey using quarterly data between the periods 1987Q1-2003Q3. The estimation results reveal that long run demand for real cash balances depends on real income, interest rate on government securities and the exchange rate. The long run elasticity of income is close to one with the opportunity cost variables carrying the expected signs. Based on the cointegration and the weak exogeneity test results, single equation error correction model is specified and estimated. The estimated models disclose the fact that the income and the interest rate effects is much smaller in the short run than the long run, whereas exchange rate influence is more pronounced in the short run.

Suggested Citation

  • Ozge Akinci, 2003. "Modeling the Demand for Currency Issued in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(1), pages 1-25.
    • Handle: RePEc:tcb:cebare:v:3:y:2003:i:1:p:1-25
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    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Central+Bank+Review/2003/Volume+3-1/
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    References listed on IDEAS

    as
    1. Mr. Jean-Claude Nachega, 2001. "A Cointegration Analysis of Broad Money Demand in Cameroon," IMF Working Papers 2001/026, International Monetary Fund.
    2. Sunil Sharma & Neil R. Ericsson, 1998. "Broad money demand and financial liberalization in Greece," Empirical Economics, Springer, vol. 23(3), pages 417-436.
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    6. Defne Mutluer & Yasemin Barlas, 2002. "Modeling the Turkish Broad Money Demand," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 2(2), pages 55-75.
    7. Mr. Philippe Egoume Bossogo, 2000. "Money Demand in Guyana," IMF Working Papers 2000/119, International Monetary Fund.
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    Citations

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    Cited by:

    1. Bartzsch, Nikolaus & Seitz, Franz, 2015. "Cash holdings in Germany and the demand for "German" banknotes: What role for cashless payments?," Weidener Diskussionspapiere 51, University of Applied Sciences Amberg-Weiden (OTH).
    2. Levent KORAP & Metin YILDIRIM, 2012. "Testing the Lucas Critique for the Turkish Money Demand Function," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 27(318), pages 57-82.
    3. Levent, Korap, 2008. "Modeling Turkish M2 broad money demand: a portfolio-based approach using implications for monetary policy," MPRA Paper 19703, University Library of Munich, Germany.
    4. Cem Saatçioðlu & Levent Korap, 2007. "Turkish Money Demand, Revisited: Some Implications For Inflation And Currency Substitution Under Structural Breaks," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 21(1+2), pages 107-124.
    5. Bartzsch, Nikolaus & Seitz, Franz & Setzer, Ralph, 2015. "The demand for euro banknotes in Germany: Structural modelling and forecasting," MPRA Paper 64949, University Library of Munich, Germany.

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    More about this item

    Keywords

    Money Demand; Cointegration; Error Correction Modelling;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • 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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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