Post Keynesian Theory Of Money Demand
EC 331 TERMPAPER MONEY DEMAND OF TURKEY INSTRUCTOR Gökhan ÖZERTAN, Associate Professor PREPARED BY RIDVAN AYDINLI CONTENTS CONTENTS 2 1. INTRODUCTION 3 2. LITERATURE REVIEW 4 3. THEORIES OF MONEY DEMAND 5 3.1. Classical Theory of Money Demand 5 3.2. Keynesian Theory 6 3.3. Post Keynesian Theories 7 3.4. Modern Quantity Theory of Money 7 4. THE MODEL 8 5. CONCLUSION 14 REFERENCES 15 1. INTRODUCTION The demand for money function creates a background to review the effectiveness of monetary policies, as an important issue in terms of the overall macroeconomic stability. Money demand is an important indicator of growth of a particular economy. The increasing money demand mostly indicates a country 's improved economic situation, …show more content…
Post Keynesian Theories After World War II, the economists began to take the Keynesian approach to the demand for money even further by developing more precise theories to explain the three Keynesian motives for holding money. The asset function of money in Keynes let to the portfolio balance approach which has the major contribution of adding the risk factor into the determination of the money demand function. Financial assets are not perfect substitutes according to portfolio balance approach because they bear varying default risk, maturity risk and marketability risk. Like the rest of the neo-Keynesian Theories wealth adjustment approach sees all assets, including money as substitutes. This approach points out that in addition to relative yields the demand for money is also influenced by the size of people’s total assets or wealth. 3.4. Modern Quantity Theory of Money Friedman pursued the question of why people choose to hold money. Instead of analyzing specific motives for holding money, as Keynes did, Friedman simply stated that the demand for money must be influenced by the same factors that influence the demand for any asset. Friedman than applied the theory of asset demand to money. From this reasoning, Friedman expressed his formulation of the demand for money as …show more content…
The coefficients are individually significant. As we found that our model is theory consistent. 5. CONCLUSION In this study, we examined the money demand for Turkey for the years 1973-2013 and we tried to analyze which variables affect the money demand and whether the relationship between the money demand and these variables holds for the long run. In accordance to this, firstly we tested for autocorrelation and based our estimation on a model without autocorrelation. Hence, we conclude that there is a long run relationship between the money demand and the variables we used (interest rate, price level, income and the lagged variable of money demand) meaning that we can not say there is a stable money demand function for Turkey. We found that money demand is positively related with income, price level and the previous year’s money demand, negatively related with the interest rate. REFERENCES B. Klos, E. Wrobel, The Monetary Transmission Mechanism and the Structural Modelling of Inflation at the National Bank of Poland, National Bank of
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