Abstract:

In this paper, a real money demand function for demand deposits is tried to be estimated by using contemporaneous autoregressive distributed lag bounds testing approach. The real income elasticity for money demand has been found as 1.92, which is related to that the relationship between real income and real money balances tends to affect the demand conditions through the reverse of the monetary speed of circulation. Interest semi-elasticity and inflation semi-elasticity of real money demand have been obtained as -0.41 and -0.56, respectively, which are also attributed to that economic agents accept the interest rate and inflation rate as an important alternative cost when determining the narrowly defined monetary holdings. The error correction modeling indicates that divergence from the long run money demand relationship is corrected 16% in one period, that is, balance conditions are re-established within about six periods. Following these findings, in the design and implementation process of monetary policy, the estimated knowledge as for the narrowly defined monetary aggregates and the theory-based relationships between these aggregates must be considered crucially by the policy makers and this knowledge must especially be related to the inflationary framework within the Turkish economy as a policy inference.                 Keywords: Money Demand; Demand Deposits; Bounds Testing; JEL Classification: C32; E41; E52;

Keywords:

Abstract:

In this paper, a real money demand function for demand deposits is tried to be estimated by using contemporaneous autoregressive distributed lag bounds testing approach. The real income elasticity for money demand has been found as 1.92, which is related to that the relationship between real income and real money balances tends to affect the demand conditions through the inverse of the monetary velocity of circulation. Interest semi-elasticity and inflation semi-elasticity of real money demand have been obtained as -0.41 and -0.56, respectively, which are also attributed to that economic agents accept the interest rate and inflation rate as an important alternative cost when determining the narrowly defined monetary holdings. The error correction modeling indicates that divergence from the long run money demand relationship is corrected 16% in one period, that is, equilibrium conditions are re-established within about six periods. Following these findings, in designing and implementation process of monetary policy, the estimated knowledge as for the narrowly defined monetary aggregates and the theory based relationships between these aggregates must be considered crucially by the policy makers and this knowledge must especially be related to the inflationary framework within the Turkish economy as a policy inference.                 Key Words: Money Demand; Demand Deposits; Bounds Testing;                 JEL Classification: C32; E41; E52;