Turkey : An Empirical Assessment of the Determinants of the Current Account Balance
Turkey has moved rapidly from a current account that was relatively in balance up to the turn of the millennia, to sustaining relatively large current account deficits over the past 15 years. Using annual data from 1986 to 2017 and a jackknife mode...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/885361565870957375/Turkey-An-Empirical-Assessment-of-the-Determinants-of-the-Current-Account-Balance http://hdl.handle.net/10986/32275 |
| Summary: | Turkey has moved rapidly from a current
account that was relatively in balance up to the turn of the
millennia, to sustaining relatively large current account
deficits over the past 15 years. Using annual data from 1986
to 2017 and a jackknife model-averaging estimator, the paper
estimates the relationship between the current account
balance and a set of determinants that are broadly
consistent with the cross-country literature. These
determinants include private sector credit, public
expenditure, real exchange rate changes, gross domestic
product growth relative to the rest of the world, trade
openness, international oil prices, foreign direct
investment levels, past net foreign assets, inflation
volatility, and global levels of uncertainty. The analysis
then decomposes the predicted current account balance for
five-year periods to illustrate the factors that have driven
the current account over time. Over 2003-07, a large current
account deficit became established in Turkey, driven by an
expansion of credit to households and rapid gross domestic
product growth, coupled with improved macroeconomic
stability that supported higher spending and therefore
imports. Since then, the negative effect of household credit
has abated, but was replaced in 2008-17 by an expansion of
credit to the corporate sector as a driver of the current
account deficit. The current account balance in Turkey is
also found to be less persistent than is typically found in
the cross-country literature, implying that it adjusts more
rapidly in response to shocks. |
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