LONG-RUN RELATIONS BETWEEN MONEY, PRICES AND OUTPUT: THE CASE OF TURKEY

Abstract

In this paper, the long-run relationships between monetary aggregates, prices and real output level have been examined in a quantity theory of money perspective for the Turkish economy. Using some contemporaneous econometric techniques, our findings exhibit that stationary characteristics of the velocities of narrowly and broadly defined monetary aggregates cannot be rejected. However, monetary aggregates seem to have an endogeneity for the long-run evolution of prices and real income. Furthermore, some parameter instabilities and structural breaks have been attributed to the estimated model especially for the 1994 and 2001 economic crisis periods in the Turkish economy. We have concluded that given the endogenous characteristics of the monetary variables, monetary authority follows an accommodative monetary policy inside the period

Keywords

• Quantity Theory of Money,Co-integration,Turkish Economy

PARA, FİYATLAR VE ÇIKTI ARASINDAKİ UZUN-DÖNEMLİ İLİŞKİLER: TÜRKİYE ÖRNEĞİ

Öz

In this paper, the long-run relationships between monetary aggregates, prices and real output level have been examined in a quantity theory of money perspective for the Turkish economy. Using some contemporaneous econometric techniques, our findings exhibit that stationary characteristics of the velocities of narrowly and broadly defined monetary aggregates cannot be rejected. However, monetary aggregates seem to have an endogeneity for the long-run evolution of prices and real income. Furthermore, some parameter instabilities and structural breaks have been attributed to the estimated model especially for the 1994 and 2001 economic crisis periods in the Turkish economy. We have concluded that given the endogenous characteristics of the monetary variables, monetary authority follows an accommodative monetary policy inside the period.

Anahtar Kelimeler

• Paranın Miktar Kuramı,Eş-Bütünleşim,Türkiye Ekonomisi

Kaynakça

1. Ardıc, K. (1997), “Lucas Eleştirisi (Lucas Critique)”, Para & Finans Ansiklopedisi, (Ed., D. Gökçe), Creative Yayıncılık ve Tanıtım, pp. 1063-1067.
2. Ashra, S., S. Chattopadhyay, and K. Chaudhuri (2004), “Deficit, Money and Price:The Indian Experience”, Journal of Policy Modeling, Vol. 26, pp. 289-299.
3. Banerjee, A., R.L. Lumsdaine and J.H. Stock (1992), “Recursive and Sequential Tests of the Unit Root and Trend Break Hypothesis”, Journal of Business and Economic Statistics, Vol. 10, pp. 271-287.
4. Bårdsen, G. (1992), “Dynamic Modeling of the Demand for Narrow Money in Norway”, Journal of Policy Modeling, Vol. 14, No. 3, pp. 363-393.
5. Bullard, J. (1999), “Testing Long-Run Monetary Neutrality Propositions: Lessons from the Recent Research”, FRB of St. Louis Review, November/December, pp. 57-77.
6. Cheong, C. (2003), “Regime Changes and Econometric Modeling of the Demand for Moneyin Korea”, Economic Modelling, Vol. 20, pp. 437-453.
7. Clemente, J., A. Montanes and M. Reyes (1998), “Testing for a Unit Root in Variables with a Double Change in the Mean”, Economics Letters, Vol. 59, No. 2, pp. 175-182.
8. Dickey, D.A. and W.A.Fuller (1979), “Distribution of the Estimators for Autoregressive Time Series with a Unit Root”, Journal of the American Statistical Association, Vol. 74, pp. 427-431.

9. Dotsey, M. and A. Hornstein (2003), “Should a Monetary Policymaker Look at Money?”, Journal of Monetary Economics, Vol. 50, pp. 547-579.
10. Dwyer, G.P. and R.W. Hafer (1999), “Are Money Growth and Inflation Still Related?”, FRB of Atlanta Economic Review, Second Quarter, pp. 32-43.
11. Dwyer, G.P. and R.W. Hafer (1988), “Is Money Irrelevant?”, FRB of St. Louis Review, Vol. 80, pp. 13-24.
12. Engle, R.F., D.F. Hendry and J.-F. Richard (1983), “Exogeneity”, Econometrica, Vol. 51, No. 2, pp. 277-304.
13. Engle, R.F. and D.F. Hendry (1993), “Testing Super-exogeneity and Invariance in Regression Models”, Journal of Econometrics, Vol. 56, pp. 119-139.
14. Estrella, A. and F.S. Mishkin (1997), “Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy?”, Journal of Monetary Economics, Vol. 40, pp. 279-304.
15. Favero, C and D.F. Hendry (1992), “Testing the Lucas’ Critique: A Review”, Econometric Reviews, Vol. 11, No. 3, pp. 265-306.
16. Fisher, I. (1911). The Purchasing Power of Money, New York, MacMillan Ltd.
17. Fisher, M.E. and J.J. Seater (1993), “Long-Run Neutrality and Superneutrality in an ARIMA Framework”, American Economic Review, Vol. 83, pp. 402-415.
18. Fitzgerald, T.J. (1999), “Money Growth and Inflation: How Long is the Long-run?”, FRB of Cleveland Economic Commentary.
19. Friedman, M. (1956), “The Quantity Theory of Money – A Restatement”, Studies in the Quantity Theory of Money, (Ed. M. Friedman), The University of Chicago Press, pp. 3-21.
20. Geweke, J. (1986), “The Superneutrality of Money in the United States: An Interpretation of the Evidence”, Econometrica, Vol. 54, No. 1, pp. 1-21.
21. Ghartey, E.E. (1998), “Monetary Dynamics in Ghana: Evidence fro Cointrgration, Error Correction Modelling, and Exogeneity”, Journal of Development Economics, Vol. 57, pp. 473-486.
22. Grauwe, P.D. and M. Polan (2005), “Is Inflation Always and Everywhere a Monetary Phenomenon?”, Scand. J. of Economics, Vol. 107, No. 2, pp. 239-259.
23. Hafer, R.W. and A.M. Kutan (1994), “Economic Reforms and Long-Run Money Demand in China: Implications for Monetary Policy”, Southern Economic Journal, Vol. 60, No. 4, pp. 936-945.
24. Harris, R.I.D. (1995). Using Cointegration Analysis in Econometric Modelling, Prentice Hall.
25. Hendry, D.F. and N.R. Ericsson (1991), “Modeling M1 Money Demand in the United Kingdom and the United States”, European Economic Review, Vol. 35, pp. 833-881.
26. Herwartz, H. and H.-E. Reimers (2006), “Long-Run Links among Money, Prices and Output: Worldwide Evidence”, German Economic Review, Vol. 7, 65- 86.
27. Hume, D. (1970), “Of Money”, Writings on Economics, (Ed. E.Rotwein),University of Wisconsin Press. Reprinted in selected essays from Political Discourses, 1752.
28. Johansen, S. (1995). Likelihood-based Inference in Cointegrated Vector Autoregressive Models, Oxford University Press.
29. Karfakis, C. (2002), “Testing the Quantity Theory of Money in Greece”, Applied Economics, Vol. 34, pp. 583-587.
30. Karfakis, C. (2004), “Testing the Quantity Theory of Money in Greece: Reply to Ozmen”, Applied Economics Letters, Vol. 11, pp. 541-43.
31. King, R.G. and M.W. Watson (1997), “Testing Long-Run Neutrality”, FRB of Richmond Economic Quarterly, Vol. 83, No. 3, pp. 69-101.
32. Koustas, Z.N. (1998), “Canadian Evidence on Long-Run Neutrality Propositions”, Journal of Macroeconomics, Vol. 20, No. 2, Spring, pp. 397-411.
33. Lucas, R.E. Jr. (1980), “Two Illustrations of the Quantity Theory of Money”, American Economic Review, Vol. 70, No. 5, pp. 1005-1014.
34. Lucas, R.E. (1981), “Econometric Policy Evaluation: A Critique”, Studies in Business-Cycle Theory, (Ed. R.E. Lucas) , MIT Press, pp. 104-130.
35. MacKinnon, J.G., A.A. Haug and L. Michelis (1999), “Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration”, Journal of Applied Econometrics, Vol. 14, pp. 563-577.
36. Meltzer, A. H. (1998), “Monetarism: The Issues and the Outcome”, Atlantic Economic Journal, Vol. 26, pp. 8-31.
37. Metin, K. (1995), The Analysis of Inflation: The Case of Turkey (1948-1988), Capital Markets Board, Publication number: 20.
38. Mishkin, F.S. (1997), The Economics of Money, Banking and Financial Markets, 5. Ed.Addison-Wesley.
39. Osterwald-Lenum, M. (1992), “A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics”, Oxford Bulletin of Economics and Statistics, Vol. 54, pp. 461- 472.
40. Ozmen, E. (1996), “The Demand for Money Instability”, METU Studies in Development, Vol. 23, No. 2, pp. 271-292.
41. Ozmen, E. (2003), “Testing the Quantity Theory of Money in Greece”, Applied Economics Letters, Vol. 10, pp. 971-974.
42. Perron, P. (1989), “The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis”, Econometrica, Vol. 57, pp. 1361-1401.
43. Perron, P. (1990), “Testing for a Unit Root in a Time Series with Changing Mean”, Journal of Business and Economic Statistics, Vol. 8, pp. 153-62.
44. Phillips, P.C.B. and P. Perron (1988), “Testing for a Unit Root in Time Series Regression”, Biometrika, Vol. 75, pp. 335-346.
45. Pigou, A.C. (1917), “The Value of Money”, Quarterly Journal of Economics, Vol. 32, pp. 38-65.
46. Serletis, A. and Krause, D. (1996), “Empirical Evidence on the Long-Run Neutrality Hypothesis Using Low-Frequency International Data”, Economics Letters, Vol. 50, pp. 323-327.
47. Serletis, A. and Z. Koustas (1998), “International Evidence on the Neutrality of Money”, Journal of Money, Credit and Banking, Vol. 30, No. 1, pp. 1-25.
48. Stanley, T.D. (2000), “An Empirical Critique of the Lucas Critique”, Journal of Socio-Economics, Vol. 29, pp. 91-107.
49. Zivot, E. and D.W.K. Andrews (1992), “Further Evidence of Great Crash, the Oil Price Shock and the Unit Root Hypothesis”, Journal of Business and Economic Statistics, Vol. 10, pp. 251-270.