LEAD-LAG AND RELATIONSHIP BETWEEN MONEY GROWTH AND INFLATION IN TURKEY: NEW EVIDENCE FROM A WAVELET ANALYSIS
Abstract
The study investigates the relationship between money supply and inflation and Turkey by employing wavelet analysis, mainly continuous wavelet analysis, cross wavelet transforms and wavelet coherence and phase-difference, for the period from 1987 to 2019. Our main finding confirms the modern quantity theory of money about the existence of a relationship between inflation and money supply in the short-run and long-run, and also confirms the traditional quantity theory of money about the existence of a relationship in the long run. The phase difference confirms the existence of a bidirectional relationship between money supply and inflation. The result is consistent with both the traditional quantity theory of money in the long run and the modern quantity theory of money in the short-run and long-run in terms of the existence of a relationship between money supply and inflation.
References
[2] Bankası, T. C. M. 2005. Enflasyon Hedeflemesi Rejiminin Genel Çerçevesi ve 2006 Yılında Para ve Kur Politikası. TCMB Basın Duyurusu, 56. (in Turkish)
[3] Celasun, O. 1999. The 1994 currency crisis in Turkey. The World Bank.
[4] Ditimi, A., Sunday, K., and Emma-Ebere, O. O. 2017. The Upshot of Money Supply and Inflation in Nigeria. Valahian Journal of Economic Studies, 8(2): 75–90.
[5] Durmuş, H. 2018. Türkiye’de Enflasyon Hedeflemesi: Örtük Enflasyon Ve Açik Enflasyon Dönemleri Üzerine Bir Değerlendirme. Siirt Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 6(11): 181–201. (in Turkish)
[6] Friedman, M. 1968. The Role of Monetary Policy. American Economic Review, 58:102–110.
[7] Gençay, R., Selçuk, F., and Whitcher, B. J. 2001. An introduction to wavelets and other filtering methods in finance and economics. Elsevier.
[8] Göçmen, T. 2016. Causal Relationship between Money and Inflation during a High Inflation Period: The Case of Turkey. Journal of International Business and Economics, 4(2): 1–11. DOI: https://doi.org/10.15640/jibe.v4n2a1
[9] Grinsted, A., Moore, J. C., and Jevrejeva, S. 2004. Application of the cross wavelet transform and wavelet coherence to geophysical time series. Nonlinear Processes in Geophysics, 11(5/6): 561–566.
[10] In, F., and Kim, S. 2013. An introduction to wavelet theory in finance: a wavelet multiscale approach. World scientific.
[11] Jeet, P., and Vats, P. 2017. Learning Quantitative Finance with R. Packt Publishing Ltd.
[12] Jiang, C., Chang, T., and Li, X.-L. 2015. Money growth and inflation in China: New evidence from a wavelet analysis. International Review of Economics & Finance, 35: 249–261. DOI:https://doi.org/10.1016/j.iref.2014.10.00
[13] Kayıkçı, F., and Kaplan, S. 2019. Inflation Targeting in Turkey. Theoretical Economics Letters, 9(07), 2217. DOI: https://doi.org/10.4236/tel.2019.97140
[14] King, M. 2001. No money, no inflation, the role of money in the economy. Économie Internationale, 4: 111–131.
[15] Koyuncu, A. F. T. 2014. Causality network between budget deficit, money supply and inflation: An application to Turkey. International Journal of Business and Social Science, 5(10). http://ijbssnet.com/journals/Vol_5_No_10_1_September_2014/28.pdf
[16] Loh, L. 2013. Co-movement of Asia-Pacific with European and US stock market returns: A cross-time-frequency analysis. Research in International Business and Finance, 29: 1–13. DOI:https://doi.org/10.1016/j.ribaf.2013.01.001
[17] Mavikela, N., Mhaka, S., and Phiri, A. 2019. The inflation-growth relationship in SSA inflation-targeting countries. Studia Universitatis Babes-Bolyai Oeconomica, 64(2): 84–102.
[18] Meyer, L. H. 2001. Does money matter. Federal Reserve Bank of St. Louis Review, 83(September/October 2001).
[19] Nguyen, B. 2015. Effects of fiscal deficit and money M2 supply on inflation: Evidence from selected economies of Asia. Journal of Economics, Finance and Administrative Science, 20: 49–53. DOI:https://doi.org/10.1016/j.jefas.2015.01.002
[20] Özmen, M. U., and Yılmaz, E. 2017. Co-movement of exchange rates with interest rate differential, risk premium and FED policy in “fragile economies.” Emerging Markets Review, 33: 173–188.
[21] Randy, K. Y., and Young, K. 1993. Wavelet Theory and Its Application. Kluwer Academic, Dordrecht.
[22] Rösch, A., and Schmidbauer, H. 2016. WaveletComp 1.1: A guided tour through the R package.
[23] Rua, A. 2012. Money growth and inflation in the euro area: A time‐frequency view. Oxford Bulletin of Economics and Statistics, 74(6): 875–885. DOI: https://doi.org/10.1111/j.1468-0084.2011.00680.x
[24] Sasongko, G., and Huruta, A. D. 2018. Monetary policy and the causality between inflation and money supply in Indonesia. Business: Theory and Practice, 19: 80–87. DOI: https://doi.org/10.3846/btp.2018.09
[25] Strano, A. 2003. Money Supply and Inflation How and how much can the Money Supply affect the Inflation Rate?
[26] Su, C., Fan, J., Chang, H., and Li, X. 2016. Is there causal relationship between money supply growth and inflation in China? Evidence from quantity theory of money. Review of Development Economics, 20(3): 702–719. DOI: https://doi.org/10.1111/rode.12194
[27] Torrence, C., and Webster, P. J. 1998. The annual cycle of persistence in the El Nño/Southern Oscillation. Quarterly Journal of the Royal Meteorological Society, 124(550): 1985–2004.
[28] Tursoy, T. 2019. Financial Stability and Financial Markets: Case of Turkey. University Library of Munich, Germany. https://mpra.ub.uni-muenchen.de/97147/
[29] Veleda, D., Montagne, R., and Araujo, M. 2012. Cross-wavelet bias corrected by normalizing scales. Journal of Atmospheric and Oceanic Technology, 29(9): 1401–1408. DOI: https://doi.org/10.1175/JTECH-D-11-00140.1
[30] Vladova, Z., and Yanchev, M. 2015. Empirical Evidence on the Relationship between money supply dynamics and prices in Bulgaria. Bulgarian National Bank, Discussion Papers DP/100. https://www.bnb.bg/bnbweb/groups/public/documents/bnb_publication/discussion_2015_100_en.pdf
Non-Exclusive License under Attribution 4.0 International Public License (CC BY 4.0):
This ‘Article’ is distributed under the terms of the license CC-BY 4.0., which lets others distribute, remix, adapt, and build upon this article, even commercially, as long as they credit this article for the original creation. ASERS Publishing will be acknowledged as the first publisher of the Article and a link to the appropriate bibliographic citation (authors, article title, volume issue, page numbers, DOI, and the link to the Published Article on ASERS Publishing’ Platform) must be maintained.