Testing the Quantity Theory of Money for the Turkish Economy: Evidence from the Maki Co-integration Test

In this study, the validity of the quantity theory of money is tested for the Turkish economy over the period 2006:01-2022:12. For this purpose, the unit root and co-integration tests that do not neglect structural breaks are employed. Findings from the Maki co-integration test reveal that M1, M2, and M3 money supplies are co-integrated with the inflation rate. Then, the breaks from the Maki test are integrated into the DOLS model for the long-run coefficients. According to the DOLS estimator, a 1% increase in M1, M2, and M3 causes an increase in the inflation rate by 0.24, 0.58, and 0.81 percent, respectively, in the long-run. Finally, the causality analysis also verifies the unidirectional relationship from the money supply to the inflation rate. The results indicate that the quantity theory of money is largely valid for the Turkish economy.