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On Stability of the Demand for Money in a Developing OECD

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Author Info
Ferda HALICIOGLU (The University of Greenwich)
Mehmet UGUR (The University of Greenwich)

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Abstract

This paper empirically analyses the stability of the narrow money demand function (M1) in Turkey for the period 1950-2002. As part of the IMF-sponsored stabilisation programme, Turkey has been pursuing base money targets. To ascertain whether this policy framework satisfies the necessary condition for effectiveness, we estimate and test for the stability of Turkish M1 by employing a recent single cointegration procedure proposed by Pesaran et al. (2001) along with the CUSUM and CUSUMSQ stability tests. We demonstrate that there is a stable money demand function and it could be used as an intermediate target of monetary policy in Turkey.

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Paper provided by EconWPA in its series Macroeconomics with number 0508001.

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Date of creation: 01 Aug 2005
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Handle: RePEc:wpa:wuwpma:0508001

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Related research
Keywords: co-integration; money demand; stability; Turkey;

Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  1. Buch, Claudia M, 2001. "Money Demand in Hungary and Poland," Applied Economics, Taylor and Francis Journals, vol. 33(8), pages 989-999, June. [Downloadable!] (restricted)
  2. Hansen, Bruce E, 1992. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 321-35, July.
    Other versions:
  3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  4. Bahmani-Oskooee, Mohsen, 1996. "The black market exchange rate and demand for money in Iran," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 171-176. [Downloadable!] (restricted)
  5. Hamori, Naoko & Hamori, Shigeyuki, 1999. "Stability of the Money Demand Function in Germany," Applied Economics Letters, Taylor and Francis Journals, vol. 6(5), pages 329-32, May. [Downloadable!] (restricted)
  6. Bahmani-Oskooee, Mohsen & Bohl, Martin T., 2000. "German monetary unification and the stability of the German M3 money demand function," Economics Letters, Elsevier, vol. 66(2), pages 203-208, February. [Downloadable!] (restricted)
  7. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326. [Downloadable!]
  8. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  9. Pradhan, Basanta K. & Subramanian, A., 2003. "On the stability of demand for money in a developing economy: Some empirical issues," Journal of Development Economics, Elsevier, vol. 72(1), pages 335-351, October. [Downloadable!] (restricted)
  10. Bruggeman, Annick, 2000. "The Stability of EMU-Wide Money Demand Functions and the Monetary Policy Strategy of the European Central Bank," Manchester School, University of Manchester, vol. 68(2), pages 184-202, March. [Downloadable!] (restricted)
  11. Mohesen Bahmani-Oskooee & Sungwon Shin, 2002. "Stability Of The Demand For Money In Korea," International Economic Journal, Korean International Economic Association, vol. 16(2), pages 85-95, June. [Downloadable!] (restricted)
  12. Driscoll, M J & Ford, J L, 1980. "The Stability of the Demand for Money Function and the Predictability of the Effects of Monetary Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 867-84, December. [Downloadable!] (restricted)
  13. Andoh, Samuel K & Chappell, David, 2002. "Stability of the Money Demand Function: Evidence from Ghana," Applied Economics Letters, Taylor and Francis Journals, vol. 9(13), pages 875-78, October. [Downloadable!] (restricted)
  14. Henrik Hansen & Søren Johansen, 1992. "Recursive Estimation in Cointegrated VAR-Models," Discussion Papers 92-13, University of Copenhagen. Department of Economics.
  15. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Blackwell Publishing, vol. 57(1), pages 99-125, January. [Downloadable!] (restricted)
  16. Tang, Tuck Cheong, 2002. "Demand for M3 and Expenditure Components in Malaysia: Assessment from Bounds Testing Approach," Applied Economics Letters, Taylor and Francis Journals, vol. 9(11), pages 721-25, September. [Downloadable!] (restricted)
  17. Arize, Augustine C. & Malindretos, John & Shwiff, Steven S., 1999. "Structural breaks, cointegration, and speed of adjustment Evidence from 12 LDCs money demand," International Review of Economics & Finance, Elsevier, vol. 8(4), pages 399-420, November. [Downloadable!] (restricted)
  18. Juan Luis Vega, 1998. "Money demand stability: Evidence from Spain," Empirical Economics, Springer, vol. 23(3), pages 387-400. [Downloadable!] (restricted)
  19. Kevin S. Nell, 2003. "The Stability of M3 Money Demand and Monetary Growth Targets: The Case of South Africa," The Journal of Development Studies, Taylor and Francis Journals, vol. 39(3), pages 155-180, January. [Downloadable!] (restricted)
  20. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
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