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Intertemporal Solvency of Turkey’s Current Account

Author

Listed:
  • Ayla Oğuş Binatli
  • Niloufer Sohrabji

Abstract

We test for sustainability of Turkey’s current account position between 1987 and 2009 using the intertemporal solvency model of Craig S. Hakkio and Mark Rush (1991) and Steven Husted (1992). According to this approach, the intertemporal budget constraint is satisfied if there is cointegration between exports and imports+ (which include imports, net interest income and unilateral transfer payments). We test for, and find evidence of, cointegration using the standard Johansen test as well as the Allan W. Gregory and Bruce Hansen (1996) test. The latter allows for a structural break in the cointegrating relation. Further, dynamic GLS estimation shows a statistically significant relation between exports and imports, although, we reject strong current account sustainability. Our evidence suggests that Turkey remains vulnerable to reversals in capital flows, but we believe this vulnerability will diminish as the service component of trade increases. Key words: Cointegration, Current account sustainability, Dynamic GLS, Intertemporal budget constraint, Turkey.JEL: F32, F41.

Suggested Citation

  • Ayla Oğuş Binatli & Niloufer Sohrabji, 2012. "Intertemporal Solvency of Turkey’s Current Account," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(1), pages 89-104.
    • Handle: RePEc:voj:journl:v:59:y:2012:i:1:p:89-104:id:112
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    More about this item

    Keywords

    Cointegration; Current account sustainability; Dynamic GLS; Intertemporal budget constraint; Turkey;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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