Discussion Paper, Turkish Economic Association 2008/2
The money demand process in Turkey during the period 1987:1-2002:3 can be explained better in the sense of Cagan (1956) rather than in the sense of Sargent et al.(1973).Cagan assumes the exogeneity of money. Sargent et al. suggest the endogeneity of money. Implicitly, the money supply process with regard to Turkish inflation is unpredictable with respect to the past history of prices, i.e. either inflation or currency depreciation. Therefore, the Turkish monetary regime may be described as a random walk monetary standard with short-term (myopic) discretionary policies used by the authorities. Moreover, the unpredictable money growth implies that the Central Banks passive monetary policy implementations help maintain the persistently high inflationary process in Turkey.
Demand for Money High Inflation Granger Causality Exogeneity of Money Endogeneity of Money Exchange Rate-Based Pricing