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A Monetary Disequilibrium Model for Turkey: Investigation of a Disinflationary Fiscal Rule and its Implications for Monetary Policy

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  • Özdemir, K. Azim
  • Turner, Paul

Abstract

In this paper we estimate a monetary disequilibrium model for Turkey based on Khan and Knight's [Khan, M. S., & Knight, M. D. (1981). Stabilization programs in developing countries: a formal framework. IMF Staff Papers, 28, 1-53] framework. Our results show the importance of fiscal discipline in achieving sustainable disinflation. In the long term, however, we conclude that tight fiscal policies should be mixed with monetary and debt management policies to avoid excessive monetary contraction as the real demand for broad money increases with the disinflation process.

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  • Özdemir, K. Azim & Turner, Paul, 2008. "A Monetary Disequilibrium Model for Turkey: Investigation of a Disinflationary Fiscal Rule and its Implications for Monetary Policy," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 349-361.
  • Handle: RePEc:eee:jpolmo:v:30:y:2008:i:2:p:349-361
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    1. Ozatay, Fatih, 2000. "A quarterly macroeconometric model for a highly inflationary and indebted country: Turkey," Economic Modelling, Elsevier, vol. 17(1), pages 1-11, January.
    2. Mohsin S. Khan & Malcolm D. Knight, 1981. "Stabilization Programs in Developing Countries: A Formal Framework (Programmes de stabilisation dans les pays en développement: cadre formel) (Programas de estabilización en los países en desarroll," IMF Staff Papers, Palgrave Macmillan, vol. 28(1), pages 1-53, March.
    3. Ayca Tekin-Koru & Erdal Ozmen, 2003. "Budget deficits, money growth and inflation: the Turkish evidence," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 591-596.
    4. Pierre-Richard Agénor, 1990. "Stabilization Policies in Developing Countries with a Parallel Market for Foreign Exchange; A Formal Framework," IMF Working Papers 90/16, International Monetary Fund.
    5. Sassanpour, Cyrus & Sheen, Jeffrey, 1984. "An empirical analysis of the effect of monetary disequilibria in open economies," Journal of Monetary Economics, Elsevier, vol. 13(1), pages 127-163, January.
    6. Metin, Kivilcim, 1998. "The Relationship between Inflation and the Budget Deficit in Turkey," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 412-422, October.
    7. Ozatay, Fatih, 1997. "Sustainability of fiscal deficits, monetary policy, and inflation stabilization: The case of Turkey," Journal of Policy Modeling, Elsevier, vol. 19(6), pages 661-681, December.
    8. Blejer, Mario I & Leiderman, Leonardo, 1981. "A Monetary Approach to the Crawling-Peg System: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 132-151, February.
    9. Leslie Lipschitz, 1984. "Domestic Credit and Exchange Rates in Developing Countries: Some Policy Experiments with Korean Data (Crédit intérieur et taux de change dans les pays en développement: quelques expériences en mat," IMF Staff Papers, Palgrave Macmillan, vol. 31(4), pages 595-635, December.
    10. Sundararajan, V., 1986. "Exchange rate versus credit policy : Analysis with a monetary model of trade and inflation in India," Journal of Development Economics, Elsevier, vol. 20(1), pages 75-105.
    11. Erdal Ozmen, 1998. "Is currency seigniorage exogenous for inflation tax in Turkey?," Applied Economics, Taylor & Francis Journals, vol. 30(4), pages 545-552.
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    Cited by:

    1. Levent Korap, 2006. "An Analysis of Central Bank Interventions on Forex Market For The Post-Crisis Period," Working Papers 2006/4, Turkish Economic Association.
    2. K. Azim Özdemir & Mesut Saygılı, 2009. "Monetary Pressures and Inflation Dynamics in Turkey: Evidence from P-Star Model," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(6), pages 69-86, November.
    3. Durmus Ozdemir & Mustafa Kemal Gündoğdu, 2012. "Structural Macro econometric Model of Turkey; Impact of Structural Characteristics on Macroeconomic Indicators," EcoMod2012 3886, EcoMod.
    4. K. Azim Özdemir & Mesut Saygılı, 2009. "Monetary Pressures and Inflation Dynamics in Turkey: Evidence from P-Star Model," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 45(6), pages 69-86, November.
    5. Günçavdi, Öner & Küçük, Ali Erhan, 2013. "Investment expenditure and capital accumulation in an inflationary environment: The case of Turkey," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 554-571.

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