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Exchange rate versus monetary aggregate targeting: the Turkish case

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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.
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Document Type: Research Article

Affiliations: 1: Department of Commerce, Massey University, Auckland, New Zealand 2: Department of Economics, Hacettepe University, Beytepe, Ankara, Turkey 06532

Publication date: 2009-07-01

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