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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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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840601019190
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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. U. Ozlale & E. Yeldan, 2004. "Measuring exchange rate misalignment in Turkey," Applied Economics, Taylor & Francis Journals, vol. 36(16), pages 1839-1849.
  2. Martin Uribe, 1995. "Exchange-rate based inflation stabilization: the initial real effects of credible plans," International Finance Discussion Papers 503, Board of Governors of the Federal Reserve System (U.S.).
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  8. 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.
  9. Leo Bonato & Andreas Billmeier, 2002. "Exchange Rate Pass-Through and Monetary Policy in Croatia," IMF Working Papers 02/109, International Monetary Fund.
  10. 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.
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