Abstract:

In this paper, we try to examine the Turkish M2Y broad money demand and its determinants for the period 1987.1-2004.2 with quarterly data. For this purpose, we first specify the construction of a money demand model, and give a literature review of international evidence for empirical studies carried out. By using modern econometric techniques, then, we construct an empirical broad money demand model for Turkish economy, and compare the estimated results with the findings of some other empirical money demand studies carried out on Turkish economy. The main findings of our study indicate that the broad money demand is insensitive to real income, and we attribute this case to the highly unstable growth performance of the economy and the rapid financial innovation process which decreases the correlation between monetary and income agregates. Money demandfunction indicates instabilities within estimation period, probably because of domestic economic crises conditions and political uncertanties. Also, the main determinant of our money demand model is estimated as inflationary expectations.

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