Money and Physical Capital Relationship: McKinnon’s Complementarity Hypothesis on Turkey’s Economy



Summary

A complementary relationship between money and physical capital, emphasis on liberalization, financial liberalization theory and increased real interest rates will lead to a surge in money demand and investment. In this research paper, the validity of this hypothesis, which is also known as McKinnon s complementarity hypothesis, in terms of financial liberalization policy has been tested empirically to examine the performance, money demand, interest rate and investment size in order to attempt to designate the respective relationship in Turkey. In this study, over the period of 1999Q1-2014Q4 in Turkey, the relationship between money and physical capital for available data is investigated through the BOUND and ARDL test methods. Empirical analysis of the findings suggests that Turkey s economy is based on a limited complementary relationship between money and physical capital.


Keywords

financial liberalization, McKinnon’s complementarity hypothesis, money and physical capital, Bound test and ARDL method