| By: |
Mete Feridun (Department of Economics, Loughborough University) |
| Abstract: |
Economies are susceptible to speculative attacks regardless of whether they
use fixed or floating exchange rates. Turkish experience in the last two
decades constitutes one of the most prominent examples proving this verdict.
It is widely accepted that narrow money (M1) is the most conventional measure
of liquidity, excessive growth of which may fuel speculative attacks on the
currency. The literature on currency crises clearly lacks a country-specific
study that addresses the long-run relationship between this indicator and the
speculative pressure in the exchange market. This article aims at filling this
gap in the literature using monthly Turkish time series data spanning the
period 1984:04- 2006:11. Results of the ADF unit root tests suggest that the
series are stationary. Hence, no-cointegration analysis was carried out before
the Granger-causality tests. Granger causality tests reveal strong evidence
supporting univariate causality running from narrow money (M1) to exchange
market pressure. This outcome lends empirical support to the Turkish policy
makers’ current efforts to maintain a tight control of the money supply. |
| Keywords: |
Speculative attacks; currency crises; domestic credit. |
| JEL: |
F3 E44 |
| Date: |
2006–12 |
| URL: |
http://d.repec.org/n?u=RePEc:lbo:lbowps:2006_24&r=ifn |