Effects of monetary expansion on sustainable growth and the case of Turkey

EFFECTS OF MONETARY EXPANSION ON SUSTAINABLE GROWTH AND THECASE OF TURKEYÖzgür UYSALABSTRACTIn this study the term ?sustainable growth? has been evaluated in terms of meaning and theimpact of monetary policy on sustainable growth has been assessed theoretically. It is seenthat the concept ?sustainable growth? is basically used with two meanings in today?s literatureon economics. In one of these, taking into consideration the bound between generations, it ismeant that economic growth must be achieved without leaving the future generations a worseenvironment. In this respect, sustainable growth is closely related with ecology and is widelyused by everyone who is interested in environmental economy. In the second meaning ofsustainable growth, economic growth is dealt without considering environmental dimension.In this respect, sustainable growth is raising the economy to the highest possible level andkeeping it at that level without creating inflation or economic crisis in the long term.Economists mostly mean the second meaning of the sustainable growth in the context ofmonetary policy.In the literature of economics, there are controversial ideas about whether or not monetarypolicies, especially of money supply growth rate, affect economic growth through equilibriumsteady-state capital formation. While Tobin, who investigates the effects of monetary policyon equilibrium steady-state growth rate, argues that an increase in money supply growth ratepositively affects the economic growth, Cooley and Hansen are of the opinion that it affectsthe economic growth negatively. Sidrauski, however, argues that it does not affect economicgrowth.The average growth rate of Turkish economy has been positive in the long term.Nonetheless, a sustainable growth which does not cause crisis has not been achieved due tocauses such as failure in obtaining price stability, instability in monetary policies, economiccrises that take place every five or ten years, the fact that structural reforms have not beenrealized, the fragile and weak nature of the economy and so forth. It is possible for Turkey toobtain sustainable growth if price stability, increase in productivity, right policies in economy,structural reforms and stable increase in investments and export are put in practice.