An econometric investigation of the Turkish economy

Insel, Aysu (1991) An econometric investigation of the Turkish economy. University of Southampton, Doctoral Thesis.

Abstract

In this investigation of the Turkish economy three econometric models have been constructed for the period 1964-1986, using annual data. The model of the financial sector emphasizes the roles of banks and portfolio adjustment in linking the real and monetary sectors. The Barro conjecture that government debt is not net wealth has been tested. Real financial wealth is defined in the manner suggested by Tobin. It is concluded that the banking sector, wealth and income play a crucial role in the economy, and public debt has no influence on private spending. The model of private sector saving behaviour analyzes the relationship between private saving and interest rates. The Tests for i) whether there is money illusion in the saving behaviour ii) the McKinnon and Shaw hypotheses that there is a positive response of saving to real interest rates and iii) McKinnon's complementary and Shaw's debt intermediation views, have been constructed. It is found that there is long run money illusion. The empirical evidence supports the McKinnon and Shaw hypotheses. Money and physical capital are complements, but not substitutes. The model of the investment function stresses the determination of private and public investments. The effect of public sector investment on private sector investment is examined. The long run real interest rate, real output, real capital stock and real supply of loans determine the investment function. Public investment has a crowding out effect on private investment. A Forecast encompassing test is applied for the model evaluation and for comparison with a rival model. It has been found that there is no encompassing of either models for private fixed investment.

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