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

  • K. Azim Ozdemir

In this paper we present a monetary disequilibrium model based on Khan and Knight’s framework, estimate it for the Turkish economy and run several simulation experiments. The simulation results show the importance of fiscal discipline to achieve the objectives such as to sustain the disinflation process and to reduce the high budget deficit in Turkey. In the long term perspective, however, we conclude that tight fiscal policies should be mixed with either monetary or debt management policy to avoid the excessive monetary contraction as the real demand for broad money increases with the disinflation process.

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File URL: http://www.tcmb.gov.tr/wps/wcm/connect/0b713216-366b-45f1-8558-4d0ec739b3eb/WP0507ENG.pdf?MOD=AJPERES&CACHEID=0b713216-366b-45f1-8558-4d0ec739b3eb
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Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 0507.

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Date of creation: 2005
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Handle: RePEc:tcb:wpaper:0507
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  1. 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 412-22, October.
  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. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Erdal Ozmen, 1998. "Is currency seigniorage exogenous for inflation tax in Turkey?," Applied Economics, Taylor & Francis Journals, vol. 30(4), pages 545-552.
  8. 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.
  9. 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 132-51, February.
  10. 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.
  11. 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.
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