مدل عدم تعادل پولی برای ترکیه: بررسی مالی قانون تورم زا و پیامدهای آن برای سیاست پولی

In this paper we estimate a monetary disequilibrium model for Turkey based on Khan and Knight's [Khan, M. S., & Knight, M. D. (1981). Stabilization programs in developing countries: a formal framework. IMF Staff Papers, 28, 1–53] framework. Our results show the importance of fiscal discipline in achieving sustainable disinflation. In the long term, however, we conclude that tight fiscal policies should be mixed with monetary and debt management policies to avoid excessive monetary contraction as the real demand for broad money increases with the disinflation process.

In this paper we present a monetary disequilibrium model for Turkey based on Khan and Knight's (1981) framework. The focus of interest is on the fiscal side of the economy. Our argument is that tight fiscal discipline, together with an independent central bank and restructuring the banking sector, are the most important ingredients of the current stabilization program, which was introduced in 2001. However, our simulations suggest that simple fiscal stabilization programmes can prove overly restrictive in terms of their long run properties. What appears to be needed is a combination of fiscal stabilization, monetary policy and debt management policy if a desirable long run equilibrium is to be achieved. Monetary disequilibrium models have proved useful in describing economies where monetary shocks are the major source of disturbance to the economy. With these models it is possible to track the effects of monetary policy on the economy. In particular, monetary disequilibrium models can be useful tools to understand the link between financial instability, monetary policy and real economic activity. Financial instability is created by the need for sustained borrowing by individual sectors within the economy. This provides the root source of undesired monetary expansion and associated inflation when combined with accommodative monetary policies. As a result there emerges a link between financial instability and monetary disequilibrium in the money market, which is likely to be transmitted to the real economy through the impact of credit expansion on aggregate demand, eventually leading to a financial crisis if the authorities do not address its source. Many central banks now publish ‘Financial Stability Reports’ to monitor the risks for their inflation targets arising from financial markets. Monetary disequilibrium models, therefore, offer a potential solution to the questions of how to incorporate these risks into their macroeconometric models. The earliest versions of this kind of model can be traced to Blejer (1977) and to Blejer and Leiderman (1981). Their model is basically concerned with the short run analysis of the implications of the monetary approach to the balance of payments with only two adjustment channels, price and balance of payments adjustment. Fiscal policy, which can be an important source of monetary expansion, has only an implicit role and they ignore the potential effect of monetary disequilibrium on real income. The version developed by Khan and Knight (1981) is seminal in giving an explicit role to the link between fiscal policy and the money supply and also in recognizing the output effects of monetary disequilibrium. Work since Khan and Knight has extended the model in a number of ways. Lipschitz (1984) includes explicit export and import functions in a model for the Korean economy. Sundararajan (1986) and Millack (2004) estimate similar models for the Indian economy. Agenor (1990) and Ozatay (2000) extend the monetary disequilibrium model by recognizing the currency substitution effect on real money demand. Ozatay's model is particularly interesting in that he uses it to analyze the credibility issues of alternative stabilization programs for Turkey. Monetary disequilibrium models have also been applied to developed economies by Sassanpour and Sheen (1984) who extend the model by including an augmented Phillips equation to capture price adjustment in which monetary disequilibrium is related to expected inflation. The plan of this paper is as follows. In Section 2 we set out the theoretical model and discuss how it relates to the existing literature. This is followed in Section 3 by empirical estimates of the model and a discussion of its empirical fit. Section 4 presents a number of policy related simulations of the model which demonstrate the importance of fiscal discipline for the long run properties of the solution. Finally, in Section 5 we discuss the implications of our model and present our conclusions.

This paper seeks to explain important interactions in the Turkish economy by using a monetary disequilibrium model. The estimated model is used to construct several simulation experiments. The focus of these simulations is the link between fiscal policy and money supply. This link is important because historically it has been responsible for persistent monetary disequilibrium in the Turkish economy. After defining the monetary disequilibrium, the model assumes that there will be three adjustment channels to restore equilibrium in the money market. The first and second channels are related to the quantity theory of money. If we assume there are a stable money demand relationship and no absolute liquidity preference, then equilibrium in the money market will be restored through a change in output and price level. The third channel is related to the monetary approach to the balance of payments which predicts an endogenous response of money supply through the balance of payments. However, this response can be delayed due to reasons such as the imperfect substitution between domestic assets and foreign assets, obstacles to capital mobility and the degree of openness of the economy. Estimation of the behavioural equations gives a satisfactory fit. In particular, there is a stable long run demand for real broad money in the sample period. The parameters of this money demand relationship have their expected signs and their magnitudes are similar to those reported in the literature. Moreover, this relationship remains stable after three important events in the estimation period. Those events are the liberalization of the Turkish economy in 1980, the convertibility of the Turkish Lira in 1989 and the currency crisis in 1994. Using this relationship, we define monetary disequilibrium as the difference between real money supply and the demand for real money. The estimation results of the adjustment equations show that monetary disequilibrium has a significant role. Furthermore, we also estimate two policy equations, government spending and tax revenues, in order to describe the fiscal rule between 1970 and 2001. Most of this period can be characterized as one of no serious fiscal discipline since the domestic debt stock and budget deficits increased to a level which became one of the underlying sources of the economic problems in Turkey. After estimating the model, we run several simulation experiments by formulating four scenarios for the stance of fiscal and the debt management policy. The simulation results obtained from the first scenario, which is used to describe no fiscal discipline, indicate that high budget deficits still remain a risk for the economy even after the tight fiscal policies of the last two years, 2001 and 2002. A return to the fiscal policies implemented before 2001 results in excessive monetary expansion, which creates acceleration in inflation rates in the simulation period. On the other hand if we assume there is no shift in the money demand relationship, the current fiscal policy, which can be approximated by the third scenario, ‘tight fiscal discipline’, becomes too tight in the long run, producing negative inflation rates. This conclusion is also true for the second scenario, which we characterize as moderate fiscal discipline. Our calculation shows that 5 percent higher growth rate of total tax revenues over government expenditures reduces the deficit/GDP ratio about 1 percent in each year. Therefore, the balanced budget can be only achieved in 2010 if the government follows this 5 percent rule after 2004. Moreover, with this rule it is possible to reduce this ratio below the 3 percent goal, as set by the European Union, before 2008 following the reduction in 2004. The dilemma for the authorities is that, while tight fiscal discipline creates excessive monetary contraction producing negative inflation rates in the medium term, it is essential for reducing the deficit/GDP ratio. The fourth scenario provides a solution to this dilemma. A steady change in the debt management policy by allowing private banks to hold a higher share in the domestic debt stock is able to reduce the monetary contraction caused by the tight fiscal policies as the real demand for broad money increases with the disinflation process. However, it also signals a risk in that if there is a sudden change in the composition of the debt stock it may create inflationary pressure. Of course, a steady change in the debt management policy is not the only alternative to avoid excessive monetary contraction. The desired equilibrium in the money market can be also achieved by mixing tight fiscal policies with an expansionary monetary policy by allowing a steady increase in credit to the private sector by the deposit banks.