Exchange rate versus monetary aggregate targeting: the Turkish case


Arin K. P. , GÜR T. H.

APPLIED ECONOMICS, vol.41, no.16, pp.2085-2092, 2009 (Journal Indexed in SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 41 Issue: 16
  • Publication Date: 2009
  • Doi Number: 10.1080/00036840601019190
  • Title of Journal : APPLIED ECONOMICS
  • Page Numbers: pp.2085-2092

Abstract

This article compares and contrasts the macroeconomic effects of exchange rate targeting and money supply targeting by using quarterly data from Turkey for the period February 1986-March 2000. The results of the VAR analysis show that the exchange rate does not have the traditional 'hump-shaped effect' that money supply has on output. In addition, we observe that an exchange rate depreciation leads to a temporary improvement in the trade balance for only a year, while monetary innovations have longer-lasting effects. Those results suggest that money-based targeting is more appropriate than exchange-rate targeting for Turkey.