The Effects of Budget Deficit Reduction on Exchange Rate: Evidence from Turkey
AbstractThis study investigates the effect of budget deficit reduction on exchange rate between US dollar and Turkish lira (TL). Our article aims to illustrate that the evidence on the relationship between budget deficits and exchange rates is not clear-cut and to explain why the theoretical approaches that underlie the relationship are ambiguous while there is general agreement that cutting budget deficits and debt will lower interest rates. The relationship between deficit reduction and exchange rates has caused a debate among the most famous monetary policy makers and researchers. [Melvin (1989), Mishkin (1992), Greenspan (1995), Thiessen (1995), Krugman (1995), Feldstein (1995)] In addition, budget deficit can be counted as one of the most common and major problem that influences the macroeconomic stability in developing economies. In this sense, cointegration method and causality tests were used in order to find out the possible effects of budget deficit reduction on exchange rates during the period of 1960-2003 in Turkey.
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Bibliographic InfoPaper provided by Dokuz Eylül University, Faculty of Business, Department of Economics in its series Discussion Paper Series with number 05/07.
Length: 9 pages
Date of creation: 12 Dec 2005
Date of revision: 12 Dec 2005
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Web page: http://www.deu.edu.tr/DEUWeb/Icerik/Icerik.php?KOD=442
More information through EDIRC
Budget deficits; exchange rates; cointegration analysis;
Find related papers by JEL classification:
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-21 (All new papers)
- NEP-CBA-2006-07-21 (Central Banking)
- NEP-CWA-2006-07-21 (Central & Western Asia)
- NEP-FMK-2006-07-21 (Financial Markets)
- NEP-IFN-2006-07-21 (International Finance)
- NEP-PBE-2006-07-21 (Public Economics)
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