Exchange rate versus monetary aggregate targeting: the Turkish case

Kerim Arin and Timur Gur

Applied Economics, 2009, vol. 41, issue 16, 2085-2092

Abstract: This article compares and contrasts the macroeconomic effects of exchange rate targeting and money supply targeting by using quarterly data from Turkey for the period February 1986-March 2000. The results of the VAR analysis show that the exchange rate does not have the traditional 'hump-shaped effect' that money supply has on output. In addition, we observe that an exchange rate depreciation leads to a temporary improvement in the trade balance for only a year, while monetary innovations have longer-lasting effects. Those results suggest that money-based targeting is more appropriate than exchange-rate targeting for Turkey.

Date: 2009
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DOI: 10.1080/00036840601019190

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