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A monetary model of TL/US$ exchange rate: a co-integrating approach

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  • Levent, Korap

Abstract

In our paper, we investigate the exchange rate determination mechanism of TL/US$ for the 1987Q1-2006Q4 period using quarterly observations. Following the monetary model exchange rate determination based on the economic fundamentals, the multivariate Johansen-Juselius type co-integrating modeling is employed to reveal the long-run stationary relationships leading to the determination of nominal exchange rate for the Turkish economy. Our findings give strong support to the monetary model of exchange rate and indicate that nominal exchange rate is co-integrated with the fundamentals suggested by economics theory.

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File URL: http://mpra.ub.uni-muenchen.de/20389/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20389.

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Date of creation: 2008
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Publication status: Published in İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Dergisi 59.19(2009): pp. 75-80
Handle: RePEc:pra:mprapa:20389

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Keywords: Exchange Rates; Monetary Model; Turkish Economy;

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  1. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers, Michigan State - Econometrics and Economic Theory 8905, Michigan State - Econometrics and Economic Theory.
  2. McNown, Robert & Wallace, Myles S, 1994. "Cointegration Tests of the Monetary Exchange Rate Model for Three High-Inflation Economies," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 26(3), pages 396-411, August.
  3. Kilian, Lutz, 1999. "Exchange Rates and Monetary Fundamentals: What Do We Learn from Long-Horizon Regressions?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(5), pages 491-510, Sept.-Oct.
  4. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198774501, October.
  5. Mark, Nelson C. & Sul, Donggyu, 2001. "Nominal exchange rates and monetary fundamentals: Evidence from a small post-Bretton woods panel," Journal of International Economics, Elsevier, Elsevier, vol. 53(1), pages 29-52, February.
  6. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers, Queen's University, Department of Economics 918, Queen's University, Department of Economics.
  7. Groen, Jan J. J., 2000. "The monetary exchange rate model as a long-run phenomenon," Journal of International Economics, Elsevier, Elsevier, vol. 52(2), pages 299-319, December.
  8. Costas Karfakis, 2003. "Exchange rate determination during hyperinflation: the case of the Romanian lei," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(6), pages 473-476.
  9. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, Elsevier, vol. 14(1-2), pages 3-24, February.
  10. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, American Economic Association, vol. 85(1), pages 201-18, March.
  11. Marco Rossi & Daniel Leigh, 2002. "Exchange Rate Pass-Through in Turkey," IMF Working Papers 02/204, International Monetary Fund.
  12. Bahmani-Oskooee, Mohsen & Kara, Orhan, 2000. "Exchange rate overshooting in Turkey," Economics Letters, Elsevier, Elsevier, vol. 68(1), pages 89-93, July.
  13. Irfan Civcir, 2003. "The Monetary Model of the Exchange Rate under High Inflation -The case of the Turkish Lira/US Dollar," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 53(3-4), pages 113-129, March.
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