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PurposeThe purpose of this paper is to investigate whether the inclusion of uncertainty variables in the demand for money function can produce a stable relationship in Turkey.Design/methodology/approachThe stability of a money demand function is studied by testing parameter constancy of long‐run money demand function. To this end, the authors perform Nymblom type tests in the context of the Coingtegrated VAR methodology.FindingsThe findings show that inclusion of appropriate measure of uncertainty is necessary to estimate a stable and consistent money demand function for Turkey.Originality/valueThe empirical application of Nymblom type stability tests on cointegrated VAR money demand systems is very recent and to the authors' knowledge there has been no application of this methodology on emerging market economies. Therefore, this paper extends the literature to the emerging market economies.

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This paper examines the heterogeneity of exchange rate pass-through into industry-specific import, producer, and consumer prices. Results show that depending on the imported input contents, price responsiveness to the aggregate and relative exchange rate changes displays significant differences. We found that direct exchange rate impacts are more significant than indirect effects. The importance of the indirect effects is largely influenced from energy, basic metal, and chemical industries that provide intermediate inputs to others. The time horizon plays a role in the transition process: exchange rate pass-through tends to get stronger and spread to different price indices over time. The short-run impacts of aggregate exchange rate changes are not significant, while relative exchange rate changes partially transmit to producer and consumer prices in low-import content industries. In the long run direct impacts of both aggregate and relative exchange rates are significant on import prices in all industries and producer prices in high-import content industries. Another interesting finding is that the relative and aggregate exchange rate changes have opposing impacts on domestic prices: asymmetric information about industry-specific exchange rates can create pricing opportunities.

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