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Analyzing the Present Sustainability of Turkey’s Current Account Position

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Author Info
Ayla Ogus () (Department of Economics, Izmir University of Economics)
Niloufer Sohrabji () (Department of Economics, Simmons College)

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Abstract

In this paper we assess the present sustainability of Turkey’s current account position using the framework provided by Milesi-Ferretti and Razin (1996) based on the ability-to-pay and willingness-to-lend model. This framework allows us to assess the structural features and macroeconomic policy indicators. We extend this framework by considering global sustainability indicators as well. Using data for three periods, 1991-1993, 1998-2000 and 2004-2006 we evaluate the present sustainability in light of the prior two crises (1994, 2001). Based on our analysis of these factors in the extended framework, we conclude that Turkey’s internal structure and macroeconomic conditions (such as exports and the fiscal position) have improved that are allowing Turkey to continue having large and increasing current account deficits. However, there is vulnerability from global factors namely the impending U.S. recession and a potential global slowdown. This might require some adjustments in policy to continue accumulating large deficits.

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Publisher Info
Paper provided by Izmir University of Economics in its series Working Papers with number 0803.

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Length: 42 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:izm:wpaper:0803

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Web page: http://eco.ieu.edu.tr
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Related research
Keywords: Current account sustainability; predictors of crisis; Turkey;

Find related papers by 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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References listed on IDEAS
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  1. Gian Maria Milesi-Ferrett & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2001. "Currency crises and monetary policy in an economy with credit constraints," European Economic Review, Elsevier, vol. 45(7), pages 1121-1150. [Downloadable!] (restricted)
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  3. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August. [Downloadable!] (restricted)
  4. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November. [Downloadable!] (restricted)
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  5. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Ayla Ogus & Niloufer Sohrabji, 2008. "On the optimality and sustainability of Turkey’s current account," Empirical Economics, Springer, vol. 35(3), pages 543-568, November. [Downloadable!] (restricted)
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