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Turkish money demand, revisited: some implications for inflation and currency substitution under structural breaks

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  • Levent, Korap

Abstract

In this paper, a money demand model constructed on currency in circulation is used to determine the appropriate alternative cost to hold monetary balances in the Turkish economy. Our estimation results, using contemporaneous multivariate co-integration methodology, indicate that the most significant alternative cost to demand for money is the depreciation rate of the nominal exchange rate. This brings out the importance of having a currency substitution phenomenon settled in the economy when economic agents make their decisions as to their monetary transactions. Moreover, we find that domestic inflationary framework has been subject to a weakly exogenous characteristic and conclude that the main factors leading to domestic inflation are determined out of the money demand variable space.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19479.

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Date of creation: 2007
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Publication status: Published in Boğaziçi Journal, Review of Social, Economic and Administrative Studies 1-2.21(2007): pp. 107-127
Handle: RePEc:pra:mprapa:19479

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Keywords: Money Demand ; Inflation ; Currency Substitution ; Turkish Economy ;

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