Model Stability Test of Money Demand by Monthly Time Series Using CUSUM and MOSUM Tests: Evidence from Turkey

Emrah Talas, Fatih Kaplan, Ali Kemal Celik

Abstract


The effects of policies are represented by the parameters of the concerning estimated model. As Lucas critique suggests unless the parameters change with respect to policies, the existing policies will be valid in the long-run. However, policy change can be observed at an unknown point and slowly in particular time period, then these policies will not be associated with structural change. In this study, model stability of money demand constituted by monthly time series concerning the periods of 2001:5-2011:3 in Turkey was tested by recursive CUSUM and MOSUM tests. The results of CUSUM and MOSUM tests demonstrated a single-continuous break and two discrete breaks. In this period, slow structural breaks in the model were thought to be caused by the inflation targeting policies, restricted money supply and short-term interest policies of the government.

Full Text: PDF DOI: 10.5430/rwe.v4n2p36

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

Research in World Economy
ISSN 1923-3981(Print) ISSN 1923-399X(Online)

 

Copyright © Sciedu Press

To make sure that you can receive messages from us, please add the 'Sciedu.ca' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.