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Modeling the Demand for Currency Issued in Turkey

  • Ozge Akinci

The purpose of this study is to investigate the empirical relationship between real money balances, real income, and the opportunity cost variables in Turkey using quarterly data between the periods 1987Q1-2003Q3. The estimation results reveal that long run demand for real cash balances depends on real income, interest rate on government securities and the exchange rate. The long run elasticity of income is close to one with the opportunity cost variables carrying the expected signs. Based on the cointegration and the weak exogeneity test results, single equation error correction model is specified and estimated. The estimated models disclose the fact that the income and the interest rate effects is much smaller in the short run than the long run, whereas exchange rate influence is more pronounced in the short run.

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File URL: https://www3.tcmb.gov.tr/cbr/index.php/cbreview/article/view/315/275
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Article provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its journal Central Bank Review.

Volume (Year): 3 (2003)
Issue (Month): 1 ()
Pages: 1-25

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Handle: RePEc:tcb:cebare:v:3:y:2003:i:1:p:1-25
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  1. Neil R. Ericsson & Sunil Sharma, 1996. "Broad money demand and financial liberalization in Greece," International Finance Discussion Papers 559, Board of Governors of the Federal Reserve System (U.S.).
  2. Jean-Claude Nachega, 2001. "A Cointegration Analysis of Broad Money Demand in Cameroon," IMF Working Papers 01/26, International Monetary Fund.
  3. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  4. Choudhry, Taufiq, 1995. "High inflation rates and the long-run money demand function: Evidence from cointegration tests," Journal of Macroeconomics, Elsevier, vol. 17(1), pages 77-91.
  5. Defne Mutluer & Yasemin Barlas, 2002. "Modeling the Turkish Broad Money Demand," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 2(2), pages 55-75.
  6. Heller, H Robert & Khan, Mohsin S, 1979. "The Demand for Money and the Term Structure of Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 87(1), pages 109-29, February.
  7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  8. 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.
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