Abstract :

There are two different views in the economic literature on how the money supply is determined. The first one is the exogenous view, which argues that the money supply is determined by the monetary authorities, and the second one is the endogenous view, which argues that the money supply is determined by the demand in the market. In this respect, the relationship between bank loans and money supply definitions has been frequently analyzed in the literature in the process of determining the money supply, and findings pointing to the endogeneity of the money supply have been dominantly found in Turkey. Accordingly, this article attempts to clarify two important issues. First, since the Turkish economy has been subjected to frequent foreign exchange shocks between 2005 and 2023, we examine whether there has been a change in the structure of the broadly defined money supply and whether this has distorted its relationship with bank loans, which signals the process of dematerialized money creation. Secondly, the issue of endogeneity of money supply was tried to be clarified in the period between the 2005Q4 and 2023Q4 by questioning the determining effect of loans on M2 money supply and monetary base. The results obtained in this context indicate that the money supply is endogenous, while the result that foreign currency deposits, which are included in the definition of money supply, cause structural changes in the money supply is confirmed.

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