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Exchange Rates and the Money Demand Process during the Persistently High Inflation Period in the Turkish Economy: Causes and Dynamics


  • Savaþ Bilal

    (Aksaray University)


The money demand process in Turkey during the period 1987:1-2002:3 can be explained better in the sense of Cagan (1956) rather than in the sense of Sargent et al.(1973).Cagan assumes the exogeneity of money. Sargent et al. suggest the endogeneity of money. Implicitly, the money supply process with regard to Turkish inflation is unpredictable with respect to the past history of prices, i.e. either inflation or currency depreciation. Therefore, the Turkish monetary regime may be described as a random walk monetary standard with short-term (myopic) discretionary policies used by the authorities. Moreover, the unpredictable money growth implies that the Central Bank’s passive monetary policy implementations help maintain the persistently high inflationary process in Turkey.

Suggested Citation

  • Savaþ Bilal, 2008. "Exchange Rates and the Money Demand Process during the Persistently High Inflation Period in the Turkish Economy: Causes and Dynamics," Working Papers 2008/2, Turkish Economic Association, revised Feb 2008.
  • Handle: RePEc:tek:wpaper:2008/2

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    More about this item


    Demand for Money; High Inflation; Granger Causality; Exogeneity of Money; Endogeneity of Money; Exchange Rate-Based Pricing;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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