Bahar Erdal

Ph.D., Advisor, the Central Bank of Turkey, Ankara, Turkey. E-mail:



The aim of the study is to analyze empirically the relationship between main monetary variables and economic growth in Turkey. The question is that “Which of the monetary variables have significant effects on economic growth in the long-run and in the short-run and?” and “What is the direction of causality between monetary variables and economic growth?” In this framework, the cointegration analysis and error correction model are used to test the long-run relationship and short-run effects respectively. Granger causality test is done to determine the direction of causality between the monetary variables and economic growth. The cointegration analysis shows that there is a long-run relationship between all the variables. However, none of the monetary variables has significant effects on the economic growth in the long-run. This result could be interpreted as monetary policy is neutral in the long-run. But, this does not mean that monetary policy has no contribution to economic growth in the long-run. The monetary policy can make a positive contribution to long-run economic growth by maintaining price stability. The error correction model supports the long-run relationship between the variables. There is a unidirectional causality from economic growth to money supply. As real economy grows, increasing demand for money leads to increase of money supply in the economy. Consequently, to support the economic growth, the policy makers should develop policies to increase and maintain physical and human capital as well as to develop technological progress in order to efficiently use of physical and human capital.

Keywords: Monetary policy, economic growth, cointegration, error correction model

JEL classification numbers: E52, O11, C32


The views expressed in this paper are those of the author and do not necessarily represent the official views of the institution.


CITATION: Abstracts & Proceedings of ADVED 2018 - 4th International Conference on Advances in Education and Social Sciences, 15-17 October 2018- Istanbul, Turkey

ISBN: 978-605-82433-4-7