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MULTIVARIATE COINTEGRATION APPROACH TO THE DETERMINATION OF RESERVES AND BANK CREDIT: A CASE STUDY OF TURKEY *
Author(s) -
Civcir Irfan,
Parikh Ashok
Publication year - 1995
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.1995.tb00601.x
Subject(s) - cointegration , economics , error correction model , buffer stock scheme , money supply , monetary policy , econometrics , short run , monetary economics , multivariate statistics , bank reserves , stock (firearms) , macroeconomics , reserve requirement , central bank , statistics , mathematics , mechanical engineering , engineering
The paper estimates both long‐run reserves and long‐run money demand equations using the multivariate cointegration approach. An economic model is constructed, based on the monetary approach to balance of payments in which the monetary authorities can control money supply through changes in bank credit. The vector auto‐regressive methodology is used to derive latent equilibrium relationships, and the short‐run error correction equations are estimated for both nominal money stock and reserves. A response function for the short‐run changes in bank credit is developed. Given the institutional system and slow adjustments, a response function of changes in bank credit to lagged changes in reserves performs well for the period 1960–88.