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