Stability of Money Demand Function in Turkey

Article Information
Journal: Business and Economics Research Journal
Title of Article: Stability of Money Demand Function in Turkey
Author(s): Oguz Tumturk
Volume: 8
Number: 1
Year: 2017
Page: 35-48
ISSN: 1309-2448
DOI Number: 10.20409/berj.2017126243
The purpose of this study is to investigate the money demand function and its stability in Turkey using annual data over the period of 1970 and 2013. Based on the three specifications of money demand function, cointegration and the dynamic regression estimation results reveal that more flexible version of money demand specification that links the log of real money balances, ln M/P, to the log of real GDP, ln Y/P, and the log of the nominal interest rate, lni, performs better than the money demand specifications assuming unitary income elasticities. Moreover, based on the stability test on the flexible specification of money demand, the narrow monetary aggregate M1 is found to be stable.

Keywords: Money Demand, Income and Interest Elasticities, Stability, Dynamic OLS

JEL Classification: E41, E52 Full Text