Question
The Central Bank of Turkey published a report called 'November 2020 monetary developments December 30, 2020'. According to this report, the broad money supply M3
The Central Bank of Turkey published a report called 'November 2020 monetary developments December 30, 2020'. According to this report, the broad money supply M3 grew annually by 40% in November 2020. What was the annual growth rate of M1, the narrowest measure of money supply, for the same period?
Rudiger Dornbusch worked out the theory called exchange rate overshooting model which argues that the foreign exchange rate will temporarily overreact to changes in monetary policy to compensate for sticky prices of goods in the economy.
Assume that the conditions are same as in the Dornbusch's theory. Draw and explain the possible time paths of GDP, interest rate, Money supply, Prices, Exchange rate after the 40% increase in Turkish money supply in 2020.
Explain and comment on your results.
1. TCMB Monetary Developments Report: November 2020, Monetary Developments, December 30, 2020'
https://www.tcmb.gov.tr/wps/wcm/connect/533c4d4d-be2b-4086-b0c1- 74d33a22d848/Monetary+developments.pdf?MOD=AJPERES&CACHEI D=ROOTWORKSPACE-533c4d4d-be2b-4086-b0c1-74d33a22d848- nooWGYB
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