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Asymmetric impacts of foreign exchange rate on the demand for money in Turkey: new evidence from nonlinear ARDL
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Asymmetric impacts of foreign exchange rate on the demand for money in Turkey: new evidence from nonlinear ARDL

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  • Mouyad Alsamara

    (Qatar University)

  • Zouhair Mrabet

    (Qatar University)

Abstract

Using the nonlinear ARDL bounds test for cointegration, this empirical study explores the long and the short run asymmetric impact of exchange rate shocks on the demand for money in Turkey from 1986:Q1 to 2014:Q4. Two specifications of money demand have been investigated that reveal that demand for money is explained by the scale and opportunity cost variables as well as the foreign exchange rate which accounts for currency substitution. In particular, the nonlinear ARDL model provides strong proof for asymmetry by using the bootstrap test. Our findings suggest that the response of money demand to a negative shock in exchange rate (appreciation) was stronger than its reaction to a positive shock (depreciation). Thus, individuals should expect further appreciation when Turkish lira appreciates. In addition, based on the dominated effect of inflation expectation caused by the currency depreciation, monetary policy makers should achieve more stable exchange rates to anchor price fluctuations. Furthermore, the findings of stable money demand behaviour emphasizes the important role of money to conduct an efficient monetary policy and achieve price stability.

Suggested Citation

  • Mouyad Alsamara & Zouhair Mrabet, 2019. "Asymmetric impacts of foreign exchange rate on the demand for money in Turkey: new evidence from nonlinear ARDL," International Economics and Economic Policy, Springer, vol. 16(2), pages 335-356, April.
    • Handle: RePEc:kap:iecepo:v:16:y:2019:i:2:d:10.1007_s10368-018-0421-y
    DOI: 10.1007/s10368-018-0421-y
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    Cited by:

    1. Akyurek, Cem & Kutan, Ali M. & Yilmazkuday, Hakan, 2011. "Can inflation targeting regimes be effective in developing countries? The Turkish experience," Journal of Asian Economics, Elsevier, vol. 22(5), pages 343-355, October.
    2. Kashif Islam & Ahmad Raza Bilal & Syed Anees Haider Zaidi, 2022. "Symmetric and asymmetric nexus between economic freedom and stock market development in Pakistan," Economic Change and Restructuring, Springer, vol. 55(4), pages 2391-2421, November.
    3. Tomader Elhassan, 2021. "Asymmetric Impact of Exchange Rate Fluctuations on Money Demand in Sudan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(5), pages 406-417, May.
    4. Chelghoum, Amirouche & Boumimez, Fayçal & Alsamara, Mouyad, 2023. "Asymmetric effects of oil price shocks on the demand for money in Algeria," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 1-11.
    5. Ufuk CAN & Zeynep Gizem CAN & Süleyman DEĞİRMEN, 2019. "Paranın Dolaşım Hızının ve Para Talebi Fonksiyonunun Ekonometrik Analizi: Türkiye Örneği," Istanbul Business Research, Istanbul University Business School, vol. 48(2), pages 218-247, November.
    6. Malika Neifar & Niazi Kammoun, 2022. "Revisit of Tunisia s Money Demand Function: What About Oil Price and Exchange Rate Effects?," International Journal of Economics and Financial Issues, Econjournals, vol. 12(5), pages 106-116, September.
    7. Hussin Abdullah & Shehu El-Rasheed & Hafizah Hammad Ahmad Khan, 2022. "Asymmetric Impact of Exchange Rate Changes on Money Demand in Malaysia," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 16(3), September.

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    More about this item

    Keywords

    Money demand; Foreign exchange rate; Asymmetry; Nonlinear ARDL;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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