THE RELATIONSHIP AMONG FISCAL DEFICIT, STOCK MARKET, AND MONEY SUPPLY: EMPIRICAL EVIDENCE FOR TURKEY

Abstract

The objective of this paper is to examine the asymmetric relationship among fiscal deficit, stock market, and money supply in Turkey for the period between January 2006 and September 2019 by utilizing non-linear autoregressive distributed lag (NARDL) methodology. Our findings demonstrate that while positive changes in share price affect fiscal deficit significantly and symmetrically in the long-run, in the short-run only negative changes in share prices influence fiscal deficit asymmetrically. Fiscal deficit does not seem to have significant impact on share prices neither in long- nor short-run. Finally, money supply is affected from both decrease and increase in share prices symmetrically and negatively in the short-run. Neither changes in fiscal deficit nor share price have significant influence on money supply in the long-run. The findings of this study provide valuable inputs for the investors in stock market and policy makers.