The impact of foreign exchange incomes on national money supply and central government debt: Case of Turkey

The money supply is an important tool for monetary policy. Central banks want to achieve policy goals by changing the money supply (the amount of money in circulation). Borrowing of the central government is an important tool for fiscal policy. The net foreign exchange income of a country refers to the net foreign exchange amount entering the country. This study has two objectives. The first objective of the study is to determine the impact of Turkey's net foreign exchange income on national money supply. The second aim of this study is to investigate the effect of Turkey's net foreign exchange income on the central government debt. Knowing these will contribute to the implementation of a healthy monetary and fiscal policy. Autoregressive-Distributed Lag (ARDL) cointegration approach was used to reveal the effect of net foreign exchange income on both national money supply and central government debt. According to the empirical findings of the study, net foreign exchange income has a statistically significant and negative (opposite) effect on both national money supply and central government debt. According to empirical findings, 1% increase in net foreign exchange income will decrease the M1 national money supply by approximately 0,07%. 1% increase in net foreign exchange income decrease the central government debt by approximately 0,04%. A deviation in the long-term relationship between net foreign exchange income and national money supply has been observed to close approximately 2,8 months later. It has been observed that a deviation in the long-term relationship between net foreign exchange income and central government debt close approximately 18 months later.