Money Demand Under Shifting Monetary Policy Regimes in Turkiye

The stability of the money demand function remains a critical concern for monetary policy analysis, particularly in emerging economies undergoing recurrent shifts in financial and policy regimes. This study examines the real money demand function for Turkiye over the period 2001Q1–2024Q2, employing a Keynesian open-economy framework that incorporates real income, domestic interest rates, and exchange rate dynamics as principal determinants. To address potential parameter heterogeneity arising from structural transformations, the analysis utilizes the Bai–Perron (2003) multiple structural break methodology, which allows for period-specific coefficient estimation rather than imposing a restrictive global stability assumption. The results show that although the long-run money demand relationship remains stable, its sensitivity to interest and exchange rate movements varies across regimes. Notably, the foreign-currency deposit interest rate coefficient turns negative in the final sub-period beginning in 2020Q2, suggesting a regime-specific shift in the perceived opportunity cost of holding money. By reconciling these period-dependent shifts, the findings suggest that monetary policy frameworks relying on constant-elasticity assumptions risk mischaracterizing the transmission mechanism in structurally transforming economies. Consequently, the study underscores the need for adaptive, regime-aware monetary policy frameworks that reflect the evolving nature of money demand.