Economic uncertainty and money demand stability in Turkey

Abstract

Purpose

The purpose of this paper is to investigate whether the inclusion of uncertainty variables in the demand for money function can produce a stable relationship in Turkey.

Design/methodology/approach

The stability of a money demand function is studied by testing parameter constancy of long‐run money demand function. To this end, the authors perform Nymblom type tests in the context of the Coingtegrated VAR methodology.

Findings

The findings show that inclusion of appropriate measure of uncertainty is necessary to estimate a stable and consistent money demand function for Turkey.

Originality/value

The empirical application of Nymblom type stability tests on cointegrated VAR money demand systems is very recent and to the authors' knowledge there has been no application of this methodology on emerging market economies. Therefore, this paper extends the literature to the emerging market economies.

Citation

Azim Özdemir, K. and Saygılı, M. (2013), "Economic uncertainty and money demand stability in Turkey", Journal of Economic Studies, Vol. 40 No. 3, pp. 314-333. https://doi.org/10.1108/01443581311283943