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Ters Para İkamesi Süreci ve Döviz Kuru Oynaklığı: Türkiye Örneği = Reverse Currency Substitution Process and Exchange Rate Volatility: The Turkish Case

Author(s): H. Mehmet TAŞÇI | Burak DARICI | Erman ERBAYKAL

Journal: Dogus University Journal
ISSN 1302-6739

Volume: 10;
Issue: 1;
Start page: 102;
Date: 2009;
Original page

Keywords: Ters Para İkamesi | Oynaklık | E-GARCH | ARDL | Türkiye | Reverse Currency Substıtutıon | Volatility | E-GARCH: ARDL | Turkey

Theoretical and empirical literature shows that there is a significant relation between currency substitution and exchange rate volatility, and this volatility affects money demand significantly. This study examines the relation between reverse currency substitution and the volatility in exchange rate as well as the effects of this volatility on the demand for money. We used monthly data covering the period of 2001/04-2006/12, which started with the implementation of Program for Transition to a Strong Economy. Following the literature, we employed E-GARCH method in exchange rate volatility modeling and Pesaran et al (2001) bounds test approach in the estimation of money demand function. In accordance with the theoretical expectations, we found that with the increase in reverse currency substitution the exchange rate volatility decreased. Moreover, the decline in the volatility of exchange rate increased the money demand, i.e. accelerated the reverse currency substitution process.

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