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Economic Uncertanity and Money Demand Stability in Turkey (Turkiye'de Ekonomik Belirsizlik ve Para Talebinin Istikrari)

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  • K. Azim Ozdemir
  • Mesut Saygili

Abstract

The monetary authorities of emerging market economies tend to emphasize the studies that find instabilities in the money demand functions and use them as the main pretext for formulating monetary policy strategies in which monetary aggregates play no prominent role. In this study, however, we attempt to understand the causes of instabilities in the conventional money demand models by accounting for the effects of macroeconomic uncertainty on money holdings. Our results suggest that money balances, income and interest spread are not cointegrated when the VAR system is missing a measure of economic uncertainty. Thus, we find stable long run relations and coefficients when the correct measures of uncertainty are introduced to the system.

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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1015.

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Date of creation: 2010
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Handle: RePEc:tcb:wpaper:1015

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Keywords: Money Demand; Parameter Constancy; Cointegration;

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