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ARTICLE INFO
Article data:
- Received: 9 September 2011
- Accepted: 26 January 2012
JEL classification: C12, C22, F32, N5
Keywords:
- Current account
- Balance of payments
-ARDL
- Boud Test
ABSTRACT
The objective of this paper is to examine the theoretical and empirical linkage between current account deficits and a broad set of macroeconomic variables in Turkey. This paper employs the Auto Regressive Distributed Lag (ARDL) model to specify the determinants of the current account in Turkey between 1987 and 2009. Results indicate that inflation affects the current account balance positively, whereas growth, openness, oil prices, and appreciation of the real exchange rate cause the current account balance to deteriorate.After any shock, it takes four quarters for the current account balance to return to its long-run equilibrium level.
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I. INTRODUCTION
The current account balance of an economy Is an Important Indicator of its performance and has many significant roles in policymakers' analyses of economic growth and development. First, the current account balance is closely related to the level of the saving-investment ratio, which is one of the key factors for economic growth. Second, a country's current account balance mainly reflects the trade balance, which is the sum of domestic residents' transactions with the entire world in the markets for goods and services. Third, since the current account balance determines the evolution of a country's stock of net claims on the rest of the world, it represents the intertemporal decisions of that country's citizens. It also has implications for imbalances, especially in terms of accumulation of foreign debt that may not be sustainable. In this respect, the growing debt stock of a country matters because it requires trade surpluses in the future to pay it back. Consequently, economists are trying to explain the changes in the current account balances, to estimate their sustainable levels and look to cause required changes in the balance through policy actions (Aristovnik, 2007, p.1).
With the liberalization of many economies after the 1980s, differentiation of exchange rate regimes, technological improvements in the financial markets, and the globalization of the world, international capital flows have become more mobile and increased in magnitude. This has introduced new problems, such as more severe and frequent...