Is There a Change in the Money Demand Stability in Turkey? A Nonlinear Approach

Emel Siklar and İlyas Şıklar
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Emel Siklar: Anadolu University, FEAS, Department of Numerical Methods, Turkey

International Journal of Economics and Financial Research, 2021, vol. 7, issue 2, 28-42

Abstract: The details of a central bank’s monetary policy are based on assumptions about the money demand. This requires researches that aim to investigate money demand dynamics. Knowing these dynamics will support the identification of risks that may pose a threat to price stability in the long run. This study aims to analyze the changes observed in the demand for money during the last 35 years (1986-2020) in Turkey. When the analyzing period is considered as a whole in the study, it is determined that the demand for money is not stable. However, the nonlinear cointegration analysis used within the framework of soft transition models indicates that the money demand model can be divided into two different regimes with stability. In this case, it is possible to talk about the existence of a transition period in which stability is lost in the demand for money. The analyzing technique used allows the coefficients obtained for money demand to change over time according to the regime in which the economy operates. Nonlinear estimation results indicate that there is a long-term relationship between the demand for money and its macroeconomic determinants such as price level, income, interest rate, and money holding preferences of economic agents.

Keywords: Money demand; STAR models; Nonlinear cointegration. (search for similar items in EconPapers)
Date: 2021
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