Cointegration, exogeneity and testing the monetary exchange rate models

Tez Türü: Yüksek Lisans

Tezin Yürütüldüğü Kurum: Orta Doğu Teknik Üniversitesi, İktisadi Ve İdari Bilimler Fakültesi, İktisat Bölümü, Türkiye

Tez Danışmanı: Erdal Özmen

Tezin Onay Tarihi: 1996

Özet:

This thesis attempts to investigate empirically the validity of the monetary models of exchange rate for the 1981:1-1995:2 period in Turkey with quarterly data. The models included in this thesis are the Hooper-Morton Model (HMM), the Real Interest Differential Model (RIDM), the Flexible Price Monetary Model (FPMM) and the Sticky Price Monetary Model. In the econometric analysis of these models, the Johansen's multivariate cointegration technique and its related tools, such as weak-exogeneity and long-run exclusion analyses are utilized. This thesis focuses on testing the robustness of the weak-exogeneity and long-run dynamics of the monetary fundamentals to alternative specifications of the monetary models and compares the empirical outcome of two groups of monetary models. The first group includes models such as the HMM, RIDM and FPMM that exploit the explicit modeling of foreign variables under the assumption that the countries in question are of equal size. The second group includes the Mundell-Fleming originated Sticky Price Monetary Model which is considered to be a small country version in which the exogenous variables are not modeled explicitly. As a result, the HMM and the Mundell-Fleming type models exhibit consistent long-run relationships among the variables of the models. However, none of the models, except for the FPMM, provides evidence for the exogeneity of the money stock. Keywords: Exchange rate, cointegration, weak-exogeneity, monetary models.