Publication details for Dr Mehmet AsutayAsutay, Mehmet (2005), 'Political Monetary Cycles: The Political Manipulation of Monetary Policy Instruments and Outcomes in Turkey', 25th Annual Conference of the Public Choice Society. Durham, European Public Choice Society.
- Publication type: Conference papers
- Keywords: Political business cycles, Political monetary cycles, Opportunistic business cycles, Nordhaus model, Elections, Monetary policy, Monetary instruments and outcomes, Time series analysis, Turkey.
- View online: Online version
- Durham research online: DRO record
Author(s) from Durham
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.
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