Estimation of velocity function for Turkey using Engle-Granger two-step method

Abstract

This study aims at estimating the velocity function, for Turkey using quarterly data. Estimation is done using cointegration and error correction methods. This enabled incorporating short-term disequilibria moments in long run equilibrium. The analysis starts with examination of level of integration of series in question. Then a number of cointegrating regressions are run. Cointegrated series are employed in different "lag-rich" error correction formulations. Finally using a general to specific approach, parsimonious models are reached dropping insignificant regressors.