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Exchange rate versus monetary aggregate targeting: the Turkish case

  • Kerim Peren Arin
  • Timur Han Gur

This article compares and contrasts the macroeconomic effects of exchange rate targeting and money supply targeting by using quarterly data from Turkey for the period February 1986-March 2000. The results of the VAR analysis show that the exchange rate does not have the traditional 'hump-shaped effect' that money supply has on output. In addition, we observe that an exchange rate depreciation leads to a temporary improvement in the trade balance for only a year, while monetary innovations have longer-lasting effects. Those results suggest that money-based targeting is more appropriate than exchange-rate targeting for Turkey.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 41 (2009)
Issue (Month): 16 ()
Pages: 2085-2092

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Handle: RePEc:taf:applec:v:41:y:2009:i:16:p:2085-2092
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  1. By A. Javier Hamann, 2001. "Exchange-Rate-Based Stabilization: A Critical Look at the Stylized Facts," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 4.
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  3. Koray, Faik & McMillin, W. Douglas, 1999. "Monetary shocks, the exchange rate, and the trade balance," Journal of International Money and Finance, Elsevier, vol. 18(6), pages 925-940, December.
  4. Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," Journal of Development Economics, Elsevier, vol. 46(2), pages 357-378, April.
  5. Kilian, Lutz, 2001. "Impulse Response Analysis in Vector Autoregressions with Unknown Lag Order," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(3), pages 161-79, April.
  6. Guillermo A. Calvo & Carlos A. VĂ©gh, 1994. "Inflation Stabilization And Nominal Anchors," Contemporary Economic Policy, Western Economic Association International, vol. 12(2), pages 35-45, 04.
  7. Kiguel, Miguel A & Liviatan, Nissan, 1992. "The Business Cycle Associated.with Exchange Rate-Based Stabilizations," World Bank Economic Review, World Bank Group, vol. 6(2), pages 279-305, May.
  8. Leo Bonato & Andreas Billmeier, 2002. "Exchange Rate Pass-Through and Monetary Policy in Croatia," IMF Working Papers 02/109, International Monetary Fund.
  9. Vuslat Us, 2004. "Monetary transmission mechanism in Turkey under the monetary conditions index: an alternative policy rule," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 967-976.
  10. Mishkin, Frederic S, 1998. "The Dangers of Exchange-Rate Pegging in Emerging-Market Countries," International Finance, Wiley Blackwell, vol. 1(1), pages 81-101, October.
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  12. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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