STUDY OF A MONEY DEMAND MODEL FOR THE TURKISH ECONOMY IN INFLATIONARY CONDITIONS

Abstract

A stable money demand function is a subject of constant study, as it is a very useful tool for interpreting and forecasting developments in the macroeconomy. In this study, the relationships between money demand and gross domestic product, consumer price index, foreign currency deposits, and deposit interest rates in Turkey are analyzed by time series analysis using quarterly data consisting of 67 observations for 1988-2004 is being examined. The sensitivity of money demand to changes in income and interest rates and the stability of the money demand function over time are the main subjects of the study. It aims to determine whether there is a stable money demand equation in Turkey and estimate income and interest rate elasticities of money demand if any. Besides, redefining a new money demand model is aimed. The empirical results support a stable money demand function for Turkey. M2 was found to be significantly sensitive to the nominal growth rate, inflation, and interest rate.