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Do exchange rate changes have symmetric or asymmetric effects on the demand for money in Turkey?

Mohsen Bahmani-Oskooee (), Ferda Halicioglu and Sahar Bahmani

Applied Economics, 2017, vol. 49, issue 42, 4261-4270

Abstract: As a result of the research conducted by Nobel Laureate Robert Mundell (1963), most studies estimating the demand for money today do include the exchange rate in their specification to account for currency substitution. Previous studies that did this for the Turkish demand for money assumed that exchange rate changes do have symmetric effects on the demand for money in Turkey. In this article, we question this assumption. By using the nonlinear ARDL approach, we show that indeed exchange rate changes do have short-run and long-run asymmetric effects on the M1 demand for money. Introducing nonlinearity also yields a stable money demand.

Date: 2017
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