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Political monetary cycles : the political manipulation of monetary policy instruments and outcomes in Turkey.

Asutay, M. (2005) 'Political monetary cycles : the political manipulation of monetary policy instruments and outcomes in Turkey.', 25th Annual Conference of the Public Choice Society Durham, 31 March-3 April 2005.


The literature on political business cycles (PBC) suggests that due to the myopic nature of individual voters and their retrospective voting attitudes, governments can manipulate the economy to create such conditions to increase their popularity to win elections. The theoretical model of this opportunistic PBC is based on Nordhaus theoretic (1975). This study attempts to investigate the presence of politically manufactured monetary cycles (PMC) in Turkey within the traditional Nordhausian opportunistic PBC model. Initially, a descriptive statistical analysis with the data related to the monetary aggregates is conducted for the period of 1986-2002 (monthly and annually) to search for the impact of elections on such variables in terms of deviation from the mean values. Thus, deviations from and interruptions in the trend in the monetary policy instruments are attributed to the political manipulations of these variables due to electioneering. In addition, the monetary policy instruments and outcomes are analysed in an econometric analysis, in which they are modelled within interrupted time-series analysis with monthly data for the 1986 M1-2002 M11 period. In order to produce the most efficient result of the model as set in the research, the interrupted time-series model, which is a version of the classical multiple regression model, is chosen as a good fit for analysing the impact of an election on the behaviour of the monetary policy instruments and outcomes. The results of the econometric time-series analysis provide strong evidence for the existence of PMC or simply PBC in the case of Turkey, and hence supports the Nordhausian theoretic. The statistical analysis, however, renders certain degree of support for the presence of PMC in Turkey. The results implicate that incumbent governments in Turkey have used monetary policy instruments and outcomes in creating PMC during election periods in their attempts to buy votes for winning elections or to enhance their chances of re-election during the period in question.

Item Type:Conference item (Paper)
Keywords:Political business cycles, Political monetary cycles, Opportunistic business cycles, Nordhaus model, Elections, Monetary policy, Monetary instruments and outcomes, Time series analysis, Turkey.
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Status:Not peer-reviewed
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Record Created:24 Jun 2008
Last Modified:17 Jun 2011 16:46

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