Validity of net international reserve model in analysis of turkey?s nominal exchange rate: Bounds testing approach

In this article, ?Net International Reserve Model? which is studied within the monetarist approach is considered in the aim of determining the short and long-term relationship between the Turkish Lira and the U.S. Dollar. The data set consist of three-month observations between 1988 and 2007. The testing of the model was carried out using Bound Test approach by Pesaran and at al. The variables that show how the changes in money supply and demand may affect the exchange rate and that are based on uncovered interest parity which is consistent with this model, and interest rate, relative income, along with the purchasing power parity, and relative money supply, relative prices and relative net foreign assets are included into the model. It is observed that the findings of the study do not support monetarist model substantially.