Endogeneity of money supply under inflation targeting regime in Turkey

It is necessary to know the uses of money in the economy and the degree to which decision makers have a say in the money supply in the choice of monetary policy strategy. In other words, whether the money supply is external or internal is an important issue in determining the framework of monetary policy to be implemented. The main objective of the study is to determine whether the money supply (M1, M2 and M3) in Turkey is internal by using data from the period 2006:3-2019:7. For this purpose, the relationships between money supply, output, inflation and interest rate variables in St. Louis equivalence were analyzed by Toda-Yamamoto causality test. The findings show that money supply in Turkey was determined internally in the period 2006-19. It is seen that the central bank can achieve financial stability and output stability without compromising price stability in the inflation targeting regime for macroeconomic stability