Long-run relations between money, prices and output: the case of Turkey

In this paper, the long-run relationships between monetary aggregates, prices and real output level have been examined in a quantity theory of money perspective for the Turkish economy. Using some contemporaneous econometric techniques, our findings exhibit that stationary characteristics of the velocities of narrowly and broadly defined monetary aggregates cannot be rejected. However, monetary aggregates seem to have an endogeneity for the long-run evolution of prices and real income. Furthermore, some parameter instabilities and structural breaks have been attributed to the estimated model especially for the 1994 and 2001 economic crisis periods in the Turkish economy. We have concluded that given the endogenous characteristics of the monetary variables, monetary authority follows an accommodative monetary policy inside the period.