Reexamination of Current Account Sustainability in Turkish Economy: Analysis via Fourier Techniques

Erdal Tanas KARAGÖL, Muhammed Şehid GÖRÜŞ, Önder ÖZGÜR

Abstract


The primary purpose of this study is to explore the current account sustainability in Turkish economy with quarterly data covering the period between 1992 to 2017. To this end, the study has applied two approaches, stationarity and cointegration analyses, hinged on intertemporal budget constraint. Both avenues analyze the mean-reverting behavior of the current account balance. In particular, this study uses Fourier unit root and cointegration tests in which Fourier methods can scrutinize an unknown number of structural breaks, capture sharp breaks, and approximates them as smooth gradual processes.

First, the present paper examines the stationarity of the ratio of Current Account Balance to GDP. FKPSS unit root test rejects the nonstationarity of this ratio implying that shocks to external balance are not persistent. Thus, stationarity analysis provides evidence in favor of sustainable current account balance. Second, the FSHIN cointegration test explores the long-run relationship between exports and imports of goods and services in which also net interest payments and net transfers are compounded. FSHIN test results do not reject the null hypothesis of cointegration which in turn indicates that the current account balance is sustainable in the Turkish economy. Aftermath, this study also utilizes ECM analysis and gets DOLS and FMOLS estimators to find out the degree of sustainability both in the short-run and in the long-run respectively. Finally, empirical findings exhibit weak form sustainability in the short-run whereas it is in strong form in the long-run.

Refbacks

  • There are currently no refbacks.


............................................................................................................................................................................................................................

HOW DO YOU REGISTER and SUBMIT AN ARTICLE?

Registering and Logging in

Submitting an Article