The Effect of Money Supply on the Inflation the Period between 1980-2013 in Turkey Economy

Article Information
Journal: Business and Economics Research Journal
Title of Article: The Effect of Money Supply on the Inflation the Period between 1980-2013 in Turkey Economy
Author(s): İsmail Şahin, Muhammet Karanfil
Volume: 6
Number: 4
Year: 2015
Page: 97-113
ISSN: 1309-2448
Abstract
To provide the economic stability, in the fight against the inflation problem, various monetary and fiscal policies have been applied in different periods in Turkey. In spite of these policies, inflation has not been taken to the expected level in the certain period. However, in recent years the decline in the inflation has demonstrated that the policies which were implemented were effective. At the end of these policies, the object is achieved partly which, was targeted in the inflation. The main purpose of the study is to search the effect of money supply on inflation. Besides, the relationship between the effectiveness of the implemented policies and the other macro-economic variables which are related to the inflation phenomenon has been evaluated. In this context, for the period between 1980 and 2013 in Turkey, the money supply, reel exchange rates and budget deficit and their impact on the inflation has been discussed. In this paper, the effect of some macro-economic variables such as the money supply, reel exchange rate and budget deficit on inflation has been analyzed by using the time series analysis. In the model, the inflation rate is dependent variable, while the money supply, reel exchange rate and budget deficit are independent variables. At the same time, the relationship between variables has been researched by using the Johansen’s co-integration and Granger’s causality methodology. In conclusion, there has been a long-term relationship between the variables in the model. On the other hand, there has been no direct causality between the money supply and inflation variables.
Keywords: Inflation rate, money supply (m2), monetary policy, co-integration, causality
JEL Classification: C13 C32, E31

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