Impact of Liquidity on Speculative Pressure in the Exchange Market
AbstractEconomies are susceptible to speculative attacks regardless of whether they use fixed or floating exchange rates. Turkish experience in the last two decades constitutes one of the most prominent examples proving this verdict. It is widely accepted that narrow money (M1) is the most conventional measure of liquidity, excessive growth of which may fuel speculative attacks on the currency. The literature on currency crises clearly lacks a country-specific study that addresses the long-run relationship between this indicator and the speculative pressure in the exchange market. This article aims at filling this gap in the literature using monthly Turkish time series data spanning the period 1984:04- 2006:11. Results of the ADF unit root tests suggest that the series are stationary. Hence, no-cointegration analysis was carried out before the Granger-causality tests. Granger causality tests reveal strong evidence supporting univariate causality running from narrow money (M1) to exchange market pressure. This outcome lends empirical support to the Turkish policy makers’ current efforts to maintain a tight control of the money supply.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2006_24.
Date of creation: Dec 2006
Date of revision: Dec 2006
Contact details of provider:
Postal: Loughborough, Leicestershire, LE11 3TU
Phone: +44 (0) 1509 222701
Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html
More information through EDIRC
Speculative attacks; currency crises; domestic credit.;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-22 (All new papers)
- NEP-CBA-2006-12-22 (Central Banking)
- NEP-CFN-2006-12-22 (Corporate Finance)
- NEP-CWA-2006-12-22 (Central & Western Asia)
- NEP-IFN-2006-12-22 (International Finance)
- NEP-MAC-2006-12-22 (Macroeconomics)
- NEP-MON-2006-12-22 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Glick, R. & Moreno, R., 1999.
"Money and Credit, Competitiveness, and Currency Crises in Asia and Latin America,"
99-01, Economisch Institut voor het Midden en Kleinbedrijf-.
- Reuven Glick & Ramon Moreno, 1999. "Money and credit, competitiveness, and currency crises in Asia and Latin America," Pacific Basin Working Paper Series 99-01, Federal Reserve Bank of San Francisco.
- Ilan Goldfajn & Rodrigo O. ValdÃ©s, 1997. "Capital Flows and the Twin Crises : The Role of Liquidity," IMF Working Papers 97/87, International Monetary Fund.
- Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
- Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997.
"Leading indicators of currency crises,"
Policy Research Working Paper Series
1852, The World Bank.
- Socorro Gochoco-Bautista, Maria, 2000. "Periods of Currency Pressure: Stylized Facts and Leading Indicators," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 125-158, January.
- Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996.
"Contagious Currency Crises,"
NBER Working Papers
5681, National Bureau of Economic Research, Inc.
- Gian Maria Milesi Ferretti & Assaf Razin, 2000.
"Current Account Reversals and Currency Crises: Empirical Regularities,"
in: Currency Crises, pages 285-323
National Bureau of Economic Research, Inc.
- Gian-Maria Milesi-Ferretti & Assaf Razin, 1998. "Current Account Reversals and Currency Crisis-Empirical Regularities," IMF Working Papers 98/89, International Monetary Fund.
- Gian Maria Milesi-Ferrett & Assaf Razin, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," NBER Working Papers 6620, National Bureau of Economic Research, Inc.
- Milesi-Ferretti, Gian Maria & Razin, Assaf, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," CEPR Discussion Papers 1921, C.E.P.R. Discussion Papers.
- Jan P.A.M. Jacobs & Gerard H. Kuper & Lestano, 2004.
"Currency crises in Asia: A multivariate logit approach,"
- Jacobs, Jan P.A.M. & Kuper, Gerard H. & Lestano, 2005. "Currency crises in Asia: a multivariate logit approach," CCSO Working Papers 200506, University of Groningen, CCSO Centre for Economic Research.
- Ranil Salgado & Luca Antonio Ricci & Francesco Caramazza, 2000. "Trade and Financial Contagion in Currency Crises," IMF Working Papers 00/55, International Monetary Fund.
- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
- Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
- Michael W. Klein & Nancy P. Marion, 1994.
"Explaining the Duration of Exchange-Rate Pegs,"
NBER Working Papers
4651, National Bureau of Economic Research, Inc.
- Eliasson, Ann-Charlotte & Kreuter, Christof, 2001. "On crisis models: An alternative crisis definition," Research Notes 01-1, Deutsche Bank Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Huw Edwards).
If references are entirely missing, you can add them using this form.