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The Relation between Money, Interest and Consumption in Developing Countries: The Case of Turkey

Engin Yılmaz and Bora Süslü

MPRA Paper from University Library of Munich, Germany

Abstract: As the basis of the current economic approach, comes to the fore the intertemporal utility function of decision-making economic units. Decision-making economic units decide their expenditures upon the substitution of their future utility for present utility. They defer present consumption and head for making savings. Yet, the exact opposite may also apply. Changes in the policy decisions of monetary authority have impacts on the intertemporal utility maximization of economic units as well. In this study, the question whether the amount or the price of the money affects the aggregate demand in Turkish economy was examined within the framework of dynamic optimization. The results showed that in Turkish economy where nominal income expectations are high, the resource and loan creation would increase and that when the central bank increase the interest rates to hinder this process, consumption would head up even more.

Keywords: New Neo Classical Synthesis; Consumption; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-ara, nep-cwa, nep-mac, nep-mon and nep-upt
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Published in Journal of Economics and Development Studies 3.3(2015): pp. 155-164

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