TESTING THE NEUTRALITY OF MONEY HYPOTHESIS: COINTEGRATION ANALYSIS WITH STRUCTURAL BREAK FOR THE TURKISH ECONOMY

One of the most popular topics in the literature of macroeconomics is the Neutrality of Money Hypothesis which is defined as a permanent, unexpected change to the level of money supply has no effect on the level of real GDP in the long run. If this hypothesis holds, policy makers cannot influence real macroeconomic variables by using monetary policies. The aim of this study is to test the Neutrality of Money Hypothesis in Turkey with considering possible structural breaks. In this regard, the considered hypothesis was tested by Hatemi-J (2008) cointegration test and it is concluded that the Neutrality Hypothesis does not hold for Turkey. This result implies that, policy makers can use money supply as an effective monetary policy instrument in order to affect the real macroeconomic variables.