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On the causal link between money and output growth: Evidence from Turkey

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  • Özge KANDEMİR KOCAASLAN

    (Hacettepe Üniversitesi)

Abstract

In this paper we empirically investigate the causal link between money and economic growth employing a Markov switching Granger causality analysis. We carry out our investigation using quarterly Turkey real Gross Domestic Product, real M2 and interbank money market rate data which cover the period between 1987:Q4 and 2012:Q1. We find that there are significant changes in the causal relation between money and economic growth over the sample period under investigation. Our results show that M2 growth and interest rate have significant predictive content for real economic activity in the Turkish economy. Furthermore, the causality running from interest rate to output growth seems to be strongly apparent particularly during the periods of economic downturn. We also document that M2 has predictive power in explaining output growth particularly during the mid-1980s and during 1990s.

Suggested Citation

  • Özge KANDEMİR KOCAASLAN, 2014. "On the causal link between money and output growth: Evidence from Turkey," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 29(339), pages 09-26.
    • Handle: RePEc:iif:iifjrn:v:29:y:2014:i:339:p:09-26
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    More about this item

    Keywords

    Growth; Money; Interest Rate; Markov-switching Granger Causality.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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