Modern Money Demand Function of Turkey: Income Components, Economic and Monetary Uncernainty

Abstract

In this study, short and long run effects of real income components, economic and monetary uncertainties on the demand of money were aimed to detect. For this purpose, the function of money demand inTurkish economy between 1998:Q1 and 2015:Q2 is estimated. This study differs from other studies as it includes real income components, economic and monetarily uncertainties in the function. Short and long run determinants of money demand are estimated with Error Correction Model (ECM) and Autoregressive Distributed Lag (ARDL) Bound Test, respectively. According to the empirical results of the study, the supreme determinant of demand of money in Turkey is the final consumption expenditures, which is the sum of state and household incomes. In addition to this, expenditures on exports of goods and services present remarkable effects. One of the important results of the study is that in the long run, economic uncertainty has a significant effect on the money demand but monetary uncertainty does not. In the short run, however, it is clear that both uncertainties affect the money demand. These results suggest that reel income components, economic and monetary uncertainties do affect the demand for money in Turkey.