Broad money demand and currency substitution in Turkey

CİVCİR İ.

EKONOMICKY CASOPIS, vol.51, no.7, pp.823-841, 2003 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 51 Issue: 7
  • Publication Date: 2003
  • Journal Name: EKONOMICKY CASOPIS
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.823-841
  • Ankara University Affiliated: Yes

Abstract

The aim of this paper is to investigate the empirical relationship between broader definition of money, real income, interest rates, inflation and expected exchange rate, and to examine the constancy of this relationship, especially in the light of financial reform, deregulation of financial markets and financial crises. The estimation results show that long-run demand for real balances in Turkey depends upon real income, on the its own interest rate, interest rates on government securities, inflation and expected exchange rates. Significance of the expected exchange rate variable indicates existence of currency substitution in Turkey. The dynamics of money demand are important, the inflation and income affects are much smaller in the short-run than long-run. Our results also reveal that the demand for broad money in Turkey is stable, despite the economic reforms and financial crises.